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KF

KINGSWAY FINANCIAL SERVICES INC (KFS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered strong top-line growth with revenue of $30.9M (+16.9% YoY) led by KSX (+42.1% YoY), while consolidated adjusted EBITDA fell to $1.653M (vs. $2.453M in Q2 2024) and GAAP net loss widened to $3.165M, largely due to Extended Warranty GAAP timing and a non-recurring $0.6M legal settlement expense .
  • KSX momentum accelerated with three acquisitions announced around quarter-end (Roundhouse, Advanced Plumbing & Drain, The HR Team) and a PIPE financing of $15.7M, enabling an increased M&A cadence; the annual KSX acquisition target was raised from 2–3 to 3–5 per year .
  • Extended Warranty showed improving leading indicators: cash sales up 9.2% YoY in Q2 and TTM modified cash EBITDA up 1.9% YoY, supporting expected recovery in GAAP earnings over time as deferred revenue is recognized .
  • Management disclosed TTM run-rate adjusted EBITDA of $22–$23M inclusive of recent acquisitions, emphasizing the portfolio’s earnings power; CEO confirmed in Q&A that excluding the three recent deals, run-rate would be ~$17M, reflecting tough GAAP comps in Extended Warranty .
  • Balance sheet strengthened: cash rose to $12.1M and net debt decreased to $46.3M from $52.0M at YE 2024, driven by PIPE proceeds; continued M&A activity and KSX execution are key stock catalysts .

What Went Well and What Went Wrong

What Went Well

  • KSX outperformance and portfolio breadth: KSX revenue +42.1% to $13.3M and adjusted EBITDA +31% to $2.395M, driven by acquisitions and organic growth; strong contributions cited across Ravix/CSuite, SPI Software, DDI, Image Solutions, and Bud’s Plumbing .
  • Strategic acceleration and funding: “The second quarter of 2025 marked a major inflection point,” with a $15.7M PIPE and three acquisitions completed/announced, reinforcing the public search fund model and recurring-revenue focus .
  • Extended Warranty leading indicators improving: “cash sales were up 9.2% year over year for the quarter… now up 6.5% year to date,” and TTM modified cash EBITDA up 1.9% YoY—management expects GAAP earnings recovery over time .

What Went Wrong

  • Profitability pressure: consolidated adjusted EBITDA fell to $1.653M (vs. $2.453M in Q2 2024) and GAAP net loss widened to $3.165M (vs. $2.186M), primarily due to Extended Warranty’s GAAP timing dynamics and higher expenses .
  • Extended Warranty segment EBIT/EBITDA compression: segment adjusted EBITDA declined to $0.619M (vs. $1.621M in Q2 2024) despite revenue growth, highlighting the divergence between GAAP and modified cash EBITDA during expansion phases .
  • One-off legal expense: a $0.6M settlement tied to a legacy Lincoln General matter impacted Q2 GAAP results (non-recurring going forward), adding noise to reported profitability .

Financial Results

Consolidated Metrics

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$26.4 $28.3 $30.9
GAAP Net Income (Loss) ($USD Millions)$(2.186) $(3.092) $(3.165)
Adjusted Consolidated EBITDA ($USD Millions)$2.453 $1.352 $1.653
Adjusted EBITDA Margin %9.3% 4.8% 5.4%

Notes: EBITDA margin % derived from adjusted EBITDA and revenue figures.

Segment Breakdown

Segment MetricQ2 2024Q1 2025Q2 2025
KSX Revenue ($USD Millions)$9.3 $11.7 $13.3
KSX Adjusted EBITDA ($USD Millions)$1.828 $1.917 $2.395
Extended Warranty Revenue ($USD Millions)$17.1 $16.7 $17.6
Extended Warranty Adjusted EBITDA ($USD Millions)$1.621 $0.850 $0.619

KPIs and Balance Sheet

KPIQ1 2025Q2 2025
Cash and Equivalents ($USD Millions)$6.4 $12.1
Total Debt ($USD Millions)$59.5 $58.3
Net Debt ($USD Millions)$53.1 $46.3
Extended Warranty Cash Sales Growth YoY (%)+3.7% +9.2%
Extended Warranty TTM Modified Cash EBITDA Change YoY (%)+11.7% +1.9%
One-time Legal Settlement Expense ($USD Millions)—$0.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
KSX acquisitions per yearOngoing2–3 per year 3–5 per year Raised

Management emphasized that TTM run-rate adjusted EBITDA of $22–$23M is a disclosure of current portfolio earnings power, not forward-looking guidance .

Earnings Call Themes & Trends

TopicQ4 2024 (Prior-2)Q1 2025 (Prior-1)Q2 2025 (Current)Trend
M&A cadence/KSX accelerationFormed Skilled Trades; added Image Solutions; KSX adj. EBITDA +15% YoY; pipeline “robust” Acquired Bud’s Plumbing and ViewPoint; 3 OIRs active; Investor Day announced PIPE $15.7M; acquired Roundhouse, Advanced Plumbing & Drain, The HR Team; acquisition target raised to 3–5/year Accelerating
Extended Warranty recoverySequential adjusted EBITDA improvement across 2024; pricing actions; moderated claims increases in H2 Cash sales +3.7% YoY; TTM mod cash EBITDA +11.7% YoY; leadership change at PWI/Penn Cash sales +9.2% YoY; TTM mod cash EBITDA +1.9% YoY; GAAP EBITDA down due to timing; recovery expected Improving leading indicators; GAAP lags
Operator/KSX executionBuilding go-to-market; operating leverage emerging across KSX “J-curve” investments in talent/tech; inflection approaching for SNS, Image Solutions Strong execution: SPI go-lives; DDI double-digit growth; Image Solutions rebuilding sales; Ravix/CSuite hired sales leader Positive
Financing/capital structureNet debt $52.0M YE; repurchases; new preferred in Feb 2025 Preferred $6.0M; net debt $53.1M; refinance earn-out PIPE proceeds; cash $12.1M; net debt down to $46.3M Strengthening
OIR pipeline/talent—3 OIRs at “full stride” 2 active OIRs; recruiting to 4–5; criteria refined for high-attribute leaders Expanding

Management Commentary

  • “The second quarter of 2025 marked a major inflection point… raised $15.7 million via a PIPE… subsequently completed three attractive acquisitions via our KSX platform… I believe we have a compelling opportunity to build a much larger and far more profitable business by following our public Search Fund strategy.” — JT Fitzgerald, CEO .
  • “For the second quarter, consolidated revenue was $30.9 million… KSX revenue increased by 42.1%… Extended Warranty revenue increased by 3.1%… Trailing twelve month mod cash EBITDA for extended warranty ended the quarter up 1.9%… cash sales were up 9.2% year over year.” — Kent Hansen, CFO .
  • “During the second quarter, we recorded $600,000 of expense related to a settlement agreement… reimbursement obligations… ended on 06/30/2025, so this expense will not recur going forward.” — Kent Hansen, CFO .
  • “After years of building the foundation, it's finally time to play offense… The energy at Kingsway is palpable… It’s a clear validation of the KSX model.” — JT Fitzgerald, CEO .

Q&A Highlights

  • Run-rate EBITDA: CEO confirmed TTM run-rate $22–$23M includes recent acquisitions; excluding Roundhouse ($4.2M), Advanced Plumbing & Drain ($0.7M) and The HR Team (~$0.2M) implies ~$17M, with the shortfall driven by Extended Warranty’s tough GAAP comps versus mod cash dynamics .
  • M&A pacing: Despite hitting five YTD acquisitions, management will not “go pencils down” and expects continued activity subject to disciplined returns; two OIRs actively searching and platforms evaluating tuck-ins .
  • OIR bench and learnings: Management is recruiting to 4–5 OIRs; aperture tightened on “revenue quality” and higher recurring revenue; attributes emphasized for leaders include “bright, curious, humble, honest… will to win” .
  • Vertical focus: Expect more activity in verticals with operating experience (accounting services, IT MSP, skilled trades); platform selection guided by industry structure (fragmented, recurring revenue) and operator fit .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for KFS during Q2 2025 were unavailable; no comparable Wall Street consensus was retrievable. Values retrieved from S&P Global.*
  • As such, no EPS or revenue estimate comparison is provided; the recap anchors on reported GAAP and non-GAAP results and management disclosures .

Key Takeaways for Investors

  • KSX is the growth engine: strong YoY acceleration and three acquisitions around quarter-end should support sustained top-line and EBITDA expansion in H2/FY, with recurring-revenue quality a central screen .
  • Extended Warranty recovery is progressing beneath GAAP: cash sales and mod cash EBITDA trends are positive; expect GAAP earnings to catch up as deferred revenue recognition lags — watch pricing, claims trends, and mix .
  • Balance sheet flexibility improved: PIPE proceeds and lower net debt enable continued disciplined M&A while funding organic initiatives (sales hires, integration) across KSX .
  • Near-term swing factor: Extended Warranty’s GAAP vs. cash metrics divergence and the normalization post one-time legal expense could create headline volatility; focus on cash indicators and segment-level trajectory .
  • Medium-term thesis: Public search fund model scaling with high-attribute operator CEOs and recurring-revenue businesses; increased acquisition cadence (3–5/year) and tuck-ins within platforms should compound EBITDA .
  • Monitoring items: H2 integration of Roundhouse/APD/HR Team, KSX margin leverage as growth initiatives mature, OIR recruiting throughput, and Extended Warranty GAAP margin recovery timeline .

Bolded beats/misses: None versus Wall Street consensus due to lack of S&P Global estimates availability.*

Footnote: *Values retrieved from S&P Global.