KINGSWAY FINANCIAL SERVICES INC. TORONTO, July 29, 2015 /PRNewswire/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the second quarter and six months ended June 30, 2015. All amounts are in U.S. dollars unless indicated otherwise.
Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, "We continued to harvest gains from prior investments during the first half of 2015. The sale of ARS in April was truly a 'win-win,' as we were able to execute on our long-term value building strategy through a sale with continued potential upside for Kingsway in the form of future earnouts, while providing ARS with the platform it needed to achieve further growth. We were able to utilize gains from this sale and the buy-back of the Management Services Agreement from 1347 Property Insurance Holdings, Inc. to further improve our capital position."
Mr. Swets continued, "The repayment of our KLROC debt represents another milestone in the turnaround of our Company, as we will save almost $2 million in cash debt service per year. After having inherited $341.0 million of outstanding debt as of December 31, 2008, we now have only $90.5 million of remaining outstanding debt, in the form of trust preferred securities which do not begin to mature until 2032.
"Kingsway is now a much simpler company. We own two warranty businesses and a non-standard automobile insurance business. We have a significant and growing portfolio of attractive passive investments. Our sale of ARS provides new resources to continue our merchant banking activities. Finally, we have legacy holding company operating expenses which we continue to manage more efficiently. Those four activities basically represent your investment in Kingsway and how you should evaluate us. We believe most of the extraordinary, legacy, non-cash accounting items, such as the loss on deconsolidation we are reporting this quarter, should now be behind us. We are now looking actively at options to leverage our considerable deferred tax asset in seeking fundamentally strong investment opportunities with asymmetric risk / reward profiles. We have never felt more confident about our future since your current management team joined the Company."
Operating Results
The Company reported net income attributable to common shareholders of $1.8 million, or $0.09 per diluted share, in the second quarter of 2015, compared to a net loss attributable to common shareholders of $5.0 million, or $0.30 per diluted share, in the second quarter of 2014.
For the six months ended June 30, 2015, Kingsway reported net income attributable to common shareholders of $3.9 million, or $0.20 per diluted share, compared to a net loss attributable to common shareholders of $6.7 million, or $0.41 per diluted share, in the prior year period.
Following are highlights of Kingsway's second quarter 2015 results. Operating (loss) income reflects the Company's core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses.
-- Operating loss was $2.5 million for the second quarter of 2015 compared
to income of $1.3 million for the second quarter of 2014.
-- Insurance Underwriting segment operating loss was $0.5 million for
the second quarter of 2015 compared to income of $0.3 million for
the second quarter of 2014.
-- Insurance Services segment operating loss was $0.1 million for the
second quarter of 2015 compared to $0.2 million for the second
quarter of 2014.
-- Net investment income of $0.5 million was reported in the second
quarter of 2015 compared to $0.3 million in the second quarter of
2014.
-- Net realized gains of $0.1 million were reported in the second
quarter of 2015 compared to $5.1 million in the second quarter of
2014, which was primarily from the liquidation of investments in the
Company's passive portfolio.
-- Other operating income and expense was a net expense of $2.5 million
in the second quarter of 2015 compared to $4.2 million in the second
quarter of 2014.
-- Adjusted operating loss was $0.1 million in the second quarter of 2015
compared with income of $5.5 million in the second quarter of 2014.
-- Book value increased to $2.46 per share at June 30, 2015 from $2.12 per
share at December 31, 2014. The Company also carries a valuation
allowance, in the amount of $14.42 per share at June 30, 2015, against
the deferred tax asset, primarily related to its loss carryforwards.
The following events occurred during the second quarter of 2015:
-- On April 1, 2015, the Company closed on the sale of its subsidiary,
Assigned Risk Solutions Ltd. ("ARS"), to National General Holdings Corp.
for $47 million in cash and potential future earnout payments. ARS is a
managing general agent and third-party administrator licensed in
twenty-two states with a primary focus on the assigned risk automobile
market. As a result, ARS, previously disclosed as part of the Insurance
Services segment, has been classified as a discontinued operation. The
Company recorded a net gain on disposal of $11.3 million during the
second quarter of 2015.
-- The Company repaid the C$15.8 million outstanding on its LROC preferred
units due June 30, 2015.
-- During the second quarter, the Company's controlling interest in
Kingsway Linked Return of Capital Trust ("KLROC Trust") was reduced to
zero upon the Company's repayment of its C$15.8 million outstanding on
its LROC preferred units due June 30, 2015. As a result, the Company
recorded a non-cash loss on deconsolidation of subsidiary of $4.4
million. This reported loss results from removing the net assets and
accumulated other comprehensive loss of KLROC Trust from the Company's
Consolidated Balance Sheets. The deconsolidation reduced consolidated
shareholders' equity by $2.8 million at June 30, 2015.
-- On April 30, 2015, the Company distributed its Annual Letter to
Shareholders. For a current review of the Company and a discussion of
its plan to create and sustain long-term shareholder value, management
invites you to review its Annual Letter to Shareholders, which may be
accessed at the Company's website or directly at http://bit.ly/kfs2014.
About the Company
Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation. The Company owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS."
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
---- ---- ---- ----
Revenues:
Net premiums earned $30,200 $28,755 $59,230 $60,675
Service fee and commission income 5,848 6,026 11,246 12,091
Net investment income 528 341 1,841 754
Net realized gains 53 5,091 53 5,130
Other-than-temporary impairment loss - - (10) -
Other income 2,514 2,286 10,871 4,560
------------ ----- ----- ------ -----
Total revenues 39,143 42,499 83,231 83,210
-------------- ------ ------ ------ ------
Operating expenses:
Loss and loss adjustment expenses 24,187 21,794 46,140 42,855
Commissions and premium taxes 5,799 5,532 11,546 12,085
Cost of services sold 1,058 937 1,721 1,793
General and administrative expenses 10,175 11,066 21,751 22,990
Amortization of intangible assets 313 409 630 823
Contingent consideration expense 110 267 254 534
Impairment of asset held for sale - 1,180 - 1,180
--------------------------------- --- ----- --- -----
Total operating expenses 41,642 41,185 82,042 82,260
------------------------ ------ ------ ------ ------
Operating (loss) income (2,499) 1,314 1,189 950
----------------------- ------ ----- ----- ---
Other expenses, net:
Interest expense 1,414 1,364 2,805 2,797
Foreign exchange losses (gains), net 760 (175) 1,152 41
Loss on change in fair value of debt 1,228 7,799 967 7,236
Loss on disposal of subsidiary - - - 1,242
Loss on deconsolidation of subsidiary 4,420 - 4,420 -
Equity in net loss of investee 71 - 207 -
------------------------------ --- --- --- ---
Total other expenses, net 7,893 8,988 9,551 11,316
------------------------- ----- ----- ----- ------
Loss from continuing operations before
income tax expense (benefit) (10,392) (7,674) (8,362) (10,366)
Income tax expense (benefit) 34 (1,059) 56 (999)
--------------------------- --- ------ --- ----
Loss from continuing operations (10,426) (6,615) (8,418) (9,367)
------------------------------- ------- ------ ------ ------
Income from discontinued operations,
net of taxes - 1,141 1,426 2,887
Gain on disposal of discontinued
operations, net of taxes 11,259 - 11,259 -
-------------------------------- ------ --- ------ ---
Net income (loss) 833 (5,474) 4,267 (6,480)
---------------- --- ------ ----- ------
Less: net (loss) income attributable
to noncontrolling interests in (1,064) (558) 160 95
consolidated subsidiaries
Less: dividends on preferred stock 82 82 163 135
---------------------------------- --- --- --- ---
Net income (loss) attributable to
common shareholders $1,815 $(4,998) $3,944 $(6,710)
---------------------------------- ------ ------- ------ -------
Loss per share -continuing
operations:
Basic: $(0.48) $(0.37) $(0.44) $(0.58)
Diluted: $(0.48) $(0.37) $(0.44) $(0.58)
Earnings per share -discontinued
operations:
Basic: $0.57 $0.07 $0.64 $0.18
Diluted: $0.57 $0.07 $0.64 $0.18
Earnings (loss) per share - net income
(loss) attributable to common
shareholders:
Basic: $0.09 $(0.30) $0.20 $(0.41)
Diluted: $0.09 $(0.30) $0.20 $(0.41)
Weighted average shares outstanding
(in '000s):
Basic: 19,710 16,430 19,710 16,430
Diluted: 19,710 16,430 19,710 16,430
======== ====== ====== ====== ======
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, 2015 December 31, 2014
------------- -----------------
(unaudited)
Assets
Investments:
Fixed maturities, at fair value
(amortized cost of $58,403 and
$56,000, respectively) $58,733 $56,195
Equity investments, at fair value
(cost of $21,346 and $16,579,
respectively) 24,446 19,618
Limited liability investments 12,688 7,294
Other investments, at cost which
approximates fair value 3,527 3,576
Short-term investments, at cost
which approximates fair value 400 400
Total investments 99,794 87,083
Cash and cash equivalents 86,175 71,234
Investment in investee 1,904 2,115
Accrued investment income 703 141
Premiums receivable, net
of allowance for doubtful
accounts of $258 and
$1,889, respectively 29,792 28,885
Service fee receivable,
net of allowance for
doubtful accounts of $247
and $247, respectively 1,115 964
Other receivables, net of
allowance for doubtful
accounts of $806 and
$806, respectively 6,852 5,145
Reinsurance recoverable 1,505 3,652
Prepaid reinsurance
premiums 91 8
Deferred acquisition
costs, net 12,617 12,197
Income taxes recoverable 57 74
Property and equipment,
net of accumulated
depreciation of $12,261
and $15,751, respectively 5,795 5,975
Goodwill 10,078 10,078
Intangible assets, net of
accumulated amortization
of $5,395 and $4,765,
respectively 15,350 15,980
Other assets 3,282 3,638
Assets held for sale - 54,553
-------------------- --- ------
Total Assets $275,110 $301,722
------------ -------- --------
Liabilities and
Shareholders' Equity
Liabilities:
Unpaid loss and loss
adjustment expenses:
Property and casualty $58,219 $63,895
Vehicle service agreements 2,975 2,975
Total unpaid loss and loss
adjustment expenses 61,194 66,870
Unearned premiums 37,848 36,432
Reinsurance payable 557 525
LROC preferred units, at
fair value - 13,618
Subordinated debt, at fair
value 42,324 40,659
Deferred income tax
liability 2,880 2,837
Deferred service fees 34,696 35,096
Accrued expenses and other
liabilities 40,728 35,836
Liabilities held for sale - 21,653
------------------------- --- ------
Total Liabilities 220,227 253,526
----------------- ------- -------
Class A preferred stock,
no par value; unlimited
number authorized;
262,876 and 262,876
issued and outstanding at
June 30, 2015 and
December 31, 2014,
respectively 6,377 6,330
Shareholders' Equity:
Common stock, no par
value; unlimited number
authorized; 19,709,706
and 19,709,706 issued and
outstanding at June 30,
2015 and December 31,
2014, respectively - -
Additional paid-in capital 341,249 340,844
Accumulated deficit (305,764) (312,050)
Accumulated other
comprehensive income 11,271 8,670
--------------------- ------ -----
Shareholders' equity
attributable to common
shareholders 46,756 37,464
Noncontrolling interests
in consolidated
subsidiaries 1,750 4,402
------------------------ ----- -----
Total Shareholders' Equity 48,506 41,866
-------------------------- ------ ------
Total Liabilities and
Shareholders' Equity $275,110 $301,722
===================== ======== ========
Non-U.S. GAAP Financial Measures
Segment Operating (Loss) Income
Segment operating (loss) income represents one measure of the pretax profitability of Kingsway's segments and is derived by subtracting direct segment expenses from direct segment revenues. Please refer to the section entitled "Non-U.S. GAAP Financial Measures" in the Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for a detailed description of this non-U.S. GAAP measure.
Adjusted Operating (Loss) Income
Adjusted operating (loss) income represents another measure used by the Company to assess the profitability of the Company's segments, its passive investment portfolio and its merchant banking activities. Adjusted operating (loss) income is comprised of segment operating (loss) income as well as net investment income, net realized gains, other-than-temporary impairment loss, equity in net loss of investee and net revenues of 1347 Advisors. A reconciliation of segment operating (loss) income and adjusted operating (loss) income to net income (loss) for the three and six months ended June 30, 2015 and 2014 is presented below:
(in thousands) Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
---- ---- ---- ----
Segment operating
income (loss) $(582) $78 $(446) $197
Net investment income 528 341 1,841 754
Net realized gains 53 5,091 53 5,130
Other-than-temporary
impairment loss - - (10) -
Equity in net loss
from investee (71) - (207) -
Revenues of 1347
Advisors, net of
related outside
professional and
advisory expenses (55) 3 5,939 3
------------------ --- --- ----- ---
Adjusted operating
income (loss) (127) 5,513 7,170 6,084
Corporate operating
expenses and other
(1) (2,020) (2,343) (5,304) (2,597)
Amortization of
intangible assets (313) (409) (630) (823)
Contingent
consideration expense (110) (267) (254) (534)
Impairment of asset
held for sale - (1,180) - (1,180)
Interest expense (1,414) (1,364) (2,805) (2,797)
Foreign exchange gains
(losses), net (760) 175 (1,152) (41)
Loss on change in fair
value of debt (1,228) (7,799) (967) (7,236)
Loss on disposal of
subsidiary - - - (1,242)
Loss on
deconsolidation of
subsidiary (4,420) - (4,420) -
------------------- ------ --- ------ ---
Loss from continuing
operations before
income tax (expense)
benefit (10,392) (7,674) (8,362) (10,366)
Income tax (expense)
benefit 34 (1,059) 56 (999)
-------------------- --- ------ --- ----
Loss from continuing
operations (10,426) (6,615) (8,418) (9,367)
Income from
discontinued
operations, net of
taxes - 1,141 1,426 2,887
Gain on disposal of
discontinued
operations, net of
taxes 11,259 - 11,259 -
------------------- ------ --- ------ ---
Net income (loss) $833 $(5,474) $4,267 $(6,480)
================ ==== ======= ====== =======
(1) Corporate operating expenses and
other includes corporate
operating expenses, stock-based
compensation expense and non-
cash expenses related to the
consolidation of KLROC Trust.
Forward-Looking Statements
This press release 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 to differ materially from those expected and projected. Words such as "expects", "believes", "anticipates", "intends", "estimates", "seeks" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, please refer to the section entitled "Risk Factors" in the Company's 2014 Annual Report on Form 10-K. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise.
Additional Information
Additional information about Kingsway, including a copy of its 2014 Annual Report and filings on Forms 10-Q and 8-K, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com.
SOURCE Kingsway Financial Services Inc.
