Q3 2024 Earnings Summary
- SNS (nurse staffing business) is poised for growth due to an acute and persistent shortage of nurses in the U.S., creating favorable supply-demand dynamics. Travel shifts increased 73% year-over-year in the quarter, indicating strong operational performance.
- SPI has grown its Annual Recurring Revenue (ARR) by 16% since acquisition, focusing on organic growth in a market that is growing faster than GDP. This strong performance suggests continued expansion and profitability.
- The company has a strong acquisition pipeline, with four Operators in Residence (OIRs) actively searching for opportunities. Their increased activity and outreach are exceeding internal goals, indicating potential for future growth through acquisitions.
- Adjusted EBITDA in certain segments is negatively impacted due to investments and challenging market conditions. For instance, DDI's adjusted EBITDA was down modestly despite a 20% increase in revenue, due to investments in infrastructure and talent, including opening a second operations center. ,
- The nurse staffing industry, where SNS operates, is facing challenges such as hospitals minimizing the use of contingent labor and being tough negotiators on price. Over the last 12 to 18 months, there has been a "large sorting out" in the industry, which may impact SNS's profitability despite increases in travel shifts. ,
- Claims severity in the Extended Warranty segment remains high due to increased labor costs and shortage of qualified technicians, impacting profitability. The cost per claim is "not going down, it's just not going up as fast." ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% (from $24.79M to $27.136M) | Improved performance in the Kingsway Search Xcelerator (KSX) segment helped drive the overall revenue increase, supported by acquisition-related contributions. Continued organizational focus on growth initiatives and moderate market demand also contributed, indicating potential for sustained revenue expansion if KSX performance remains robust. |
Kingsway Search Xcelerator (KSX) | +26% (from $7.36M to $9.293M) | Stronger top-line performance stemmed from recent acquisitions and expanded service offerings, which boosted segment revenue. This aligns with Kingsway’s strategic focus on scaling KSX; however, ongoing subsidiary-level challenges and market demand variations could influence future results. The segment remains a key driver of overall company growth. |
Net Income | -242% deeper loss (from -$675K to -$2.311M) | The lack of gains on equity investments recorded in the prior year, higher interest expenses, and mixed performance across subsidiaries led to a larger net loss. While acquisitions and segment expansions helped revenue, increased costs and fewer one-time gains contributed to the deeper loss, suggesting closer cost management may be required. |
EPS | -0.10 (vs. -0.07 YoY) | The deeper net loss coupled with a relatively stable share count drove EPS lower. Although revenue improvements in KSX provided some offset, heightened expense levels and reduced gains negatively impacted overall profitability, indicating the company’s focus on margin improvements will be critical to bolster future EPS performance. |
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Pipeline and Acquisitions
Q: How is the acquisition pipeline tracking with four OIRs?
A: The company is very active, exceeding internal goals in lead measures like proprietary outreach and NDAs signed. With four OIRs, they anticipate completing 2 to 3 acquisitions in any 12-month period, though timing can vary in the lower middle market. -
DDI EBITDA Impact
Q: When will DDI's EBITDA start reflecting its growth?
A: Investments were made in staffing and opening a second operations facility to handle increased inbound demand. The major investment phase is largely behind them, and operating leverage should start showing even in this quarter, fourth quarter. -
Claims Moderation
Q: Why are claims moderating, and what's a normal percentage?
A: Claims moderation is due to a slowdown in parts and labor inflation, which peaked around 14–15% last year and is now around 6%. Historically, claims expense growth mirrors CPI, and moderation is expected as labor cost increases subside. -
Image Solutions EBITDA Impact
Q: What's the expected EBITDA impact from Hurricane Helene delays?
A: Hardware sales and installations are delayed, not lost, due to the hurricane. Recurring service revenue remains unaffected, and the delayed revenue is expected once businesses resume normal operations. No specific guidance was provided. -
Ravix and CSuite Diversification
Q: Can Ravix and CSuite diversify away from venture and private equity markets?
A: While their core markets provide acute needs for their services, there’s cross-selling between Ravix's venture clients and CSuite's private equity clients. The focus is on penetrating existing markets before expanding into new verticals. -
SNS Market Outlook
Q: Can you reiterate the attractive dynamics of the SNS market?
A: There’s a persistent shortage of nurses in the U.S. due to insufficient supply from nursing schools and increasing demand from demographic trends. SNS is well-positioned to benefit from these long-term secular trends, despite recent industry adjustments. -
DDI Expansion Funding
Q: Will DDI use debt for expansion or self-fund?
A: The plan is to use cash flow to deleverage and fund growth, mainly covering working capital needs. No additional debt is planned for expansion due to the business's capital-light nature. -
SPI Growth Strategy
Q: What steps are you taking as SPI grows?
A: The focus is on organic growth by expanding within the current market, which is growing faster than GDP. There’s potential for future acquisitions, but currently, efforts are on scaling the existing business, which has grown ARR by 16%, with net retention over 100%. -
OIR Tenures
Q: How long have the other OIRs been with the firm?
A: Peter Hearne joined about 17–18 months ago, Miles about 14 months ago, Paul Vidal at the beginning of this year, and Rob Casper is brand new. The staggered tenures aim for a consistent acquisition cadence. -
VA Financial Impact
Q: What was the financial impact regarding the VA?
A: The sale of the VA business resulted in about $1 million in cash, with the P&L impact shown in discontinued operations.