TORONTO, April 26, 2017 /PRNewswire/ - (TSX: KFS,
NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the
"Company") today announced its operating results for the first
quarter ended March 31, 2017.
All amounts are in U.S. dollars unless indicated otherwise.
Management Comments
Larry G.
Swets, Jr., Chief Executive Officer, stated, "Adjusted
operating income of $4.1 million
during the first quarter reflected progress in a number of our
segments and investments. We recorded $2.4 million from our equity pickup in the
results of Itasca Capital Ltd. ("ICL"), reflecting the increase in
value of ICL's indirect investment in Limbach Holdings, Inc.
The improved results in our Leased Real Estate segment are based in
part on a $25 million lease amendment
negotiated between CMC and its tenant, BNSF, under which we will
record increases in rental income each period for the remainder of
the lease, beginning with the first quarter of 2017. Our
Insurance Services segment recorded positive operating earnings for
the third consecutive quarter. And, our Insurance
Underwriting segment has made progress on the implementation of
several initiatives under its new management team. Its first
quarter results reflect $0.4 million
of non-recurring severance expense related to its
restructuring."
Operating Results
The Company reported net loss
attributable to common shareholders of $1.7
million (including a non-cash loss of $1.9 million attributable to change in fair value
of debt), or $0.08 per diluted share,
in the first quarter of 2017, compared to net loss attributable to
common shareholders of $1.5 million
(including a non-cash gain of $2.5
million attributable to change in fair value of debt), or
$0.08 per diluted share, in the first
quarter of 2016.
Following are highlights of Kingsway's first quarter 2017
results. Operating loss reflects the Company's core operating
activities, including its reportable segments, passive investment
portfolio, merchant banking activities and corporate operating
expenses.
- Operating loss was $0.6 million
for the first quarter of 2017 compared to $2.8 million for the first quarter of 2016.
-
- Insurance Underwriting segment operating loss was $0.7 million for the first quarter of 2017
compared to $0.2 million for the
first quarter of 2016.
- Insurance Services segment operating income was $0.6 million for the first quarter of 2017
compared to segment operating loss of $0.2
million for the first quarter of 2016.
- Operating income attributable to the Leased Real Estate segment
was $0.9 million for the first
quarter of 2017 compared to zero for the first quarter of
2016.
- Net investment income of $0.7
million was reported for the first quarter of 2017 compared
to net investment loss of $0.1
million for the first quarter of 2016.
- Net realized gains of $0.4
million were reported for the first quarter of 2017 compared
to net realized losses of $0.2
million for the first quarter of 2016.
- Other operating income and expense was a net expense of
$2.5 million for the first quarter of
2017 compared to $2.1 million for the
first quarter of 2016.
- Adjusted operating income was $4.1
million for the first quarter of 2017 compared to adjusted
operating loss of $0.8 million for
the first quarter of 2016.
- Book value decreased to $2.55 per
share at March 31, 2017 from
$2.65 per share at December 31, 2016. The Company also carries a
valuation allowance, in the amount of $12.92 per share at March
31, 2017, against the deferred tax asset, primarily related
to its loss carryforwards.
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
March 31,
|
|
2017
|
2016
|
|
Revenues:
|
|
|
|
|
Net premiums
earned
|
$
|
32,922
|
$
|
29,427
|
|
|
Service fee and
commission income
|
6,562
|
5,322
|
|
|
Rental
income
|
3,341
|
—
|
|
|
Net investment income
(loss)
|
703
|
(72)
|
|
|
Net realized gains
(losses)
|
398
|
(171)
|
|
|
Other
income
|
2,815
|
2,374
|
|
Total
revenues
|
46,741
|
36,880
|
|
Operating
expenses:
|
|
|
|
|
Loss and loss
adjustment expenses
|
26,410
|
23,497
|
|
|
Commissions and
premium taxes
|
6,278
|
5,598
|
|
|
Cost of services
sold
|
1,304
|
773
|
|
|
General and
administrative expenses
|
11,272
|
9,551
|
|
|
Leased real estate
segment interest expense
|
1,574
|
—
|
|
|
Amortization of
intangible assets
|
291
|
295
|
|
|
Impairment of
intangible assets
|
250
|
—
|
|
Total operating
expenses
|
47,379
|
39,714
|
|
Operating
loss
|
(638)
|
(2,834)
|
|
Other expenses
(revenues), net:
|
|
|
|
|
Interest expense not
allocated to segements
|
1,159
|
1,093
|
|
|
Foreign exchange
losses, net
|
4
|
1
|
|
|
Loss (gain) on change
in fair value of debt
|
1,889
|
(2,528)
|
|
|
Equity in net
(income) loss of investees
|
(2,385)
|
69
|
|
Total other expenses
(revenues), net
|
667
|
(1,365)
|
|
Loss before income
tax expense
|
(1,305)
|
(1,469)
|
|
Income tax
expense
|
179
|
26
|
|
Net
loss
|
(1,484)
|
(1,495)
|
|
|
Less: net income
(loss) attributable to noncontrolling interests in consolidated
subsidiaries
|
105
|
(39)
|
|
|
Less: dividends on
preferred stock
|
121
|
82
|
|
|
Net loss attributable
to common shareholders
|
$
|
(1,710)
|
$
|
(1,538)
|
|
Loss per share – net
loss attributable to common shareholders:
|
|
|
|
Basic:
|
$
|
(0.08)
|
$
|
(0.08)
|
|
Diluted:
|
$
|
(0.08)
|
$
|
(0.08)
|
|
Weighted average
shares outstanding (in '000s):
|
|
|
|
Basic:
|
21,458
|
19,710
|
|
Diluted:
|
21,458
|
19,710
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
(in thousands,
except share data)
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
Fixed maturities, at
fair value (amortized cost of $58,936 and $62,136,
respectively)
|
$
|
58,640
|
|
$
|
61,764
|
|
Equity investments,
at fair value (cost of $17,430 and $19,099,
respectively)
|
21,045
|
|
23,230
|
|
Limited liability
investments
|
23,424
|
|
22,974
|
|
Limited liability
investment, at fair value
|
10,333
|
|
|
10,700
|
|
Other investments, at
cost which approximates fair value
|
7,349
|
|
|
7,975
|
|
Short-term
investments, at cost which approximates fair value
|
151
|
|
|
401
|
|
Total
investments
|
|
120,942
|
|
127,044
|
|
Cash and cash
equivalents
|
|
33,687
|
|
36,475
|
|
Investment in
investee
|
|
5,501
|
|
3,116
|
|
Accrued investment
income
|
|
728
|
|
790
|
|
Premiums receivable,
net of allowance for doubtful accounts of $115 and $115,
respectively
|
|
33,561
|
|
31,564
|
|
Service fee
receivable, net of allowance for doubtful accounts of $279 and
$274, respectively
|
|
1,559
|
|
1,320
|
|
Other receivables,
net of allowance for doubtful accounts of $806 and $806,
respectively
|
|
7,014
|
|
4,692
|
|
Reinsurance
recoverable
|
|
679
|
|
784
|
|
Deferred acquisition
costs, net
|
|
14,113
|
|
13,609
|
|
Property and
equipment, net of accumulated depreciation of $11,752 and $10,603,
respectively
|
|
115,855
|
|
116,961
|
|
Goodwill
|
|
71,061
|
|
71,061
|
|
Intangible assets,
net of accumulated amortization of $7,472 and $7,181,
respectively
|
|
88,477
|
|
89,017
|
|
Other
assets
|
|
4,530
|
|
4,588
|
|
Total
Assets
|
$
|
497,707
|
|
$
|
501,021
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Unpaid loss and loss
adjustment expenses:
|
|
|
|
|
|
Property and
casualty
|
$
|
48,201
|
|
$
|
53,795
|
|
Vehicle service
agreements
|
2,773
|
|
|
2,915
|
|
Total unpaid loss and
loss adjustment expenses
|
|
50,974
|
|
56,710
|
|
Unearned
premiums
|
|
44,041
|
|
40,176
|
|
Reinsurance
payable
|
|
100
|
|
100
|
|
Note
payable
|
|
189,213
|
|
190,074
|
|
Subordinated debt, at
fair value
|
|
45,508
|
|
43,619
|
|
Deferred income tax
liability
|
|
48,668
|
|
48,720
|
|
Deferred service
fees
|
|
35,952
|
|
35,822
|
|
Income taxes
payable
|
|
2,283
|
|
2,051
|
|
Accrued expenses and
other liabilities
|
|
19,781
|
|
20,487
|
|
Total
Liabilities
|
|
436,520
|
|
437,759
|
|
|
|
|
|
|
Class A preferred
stock, no par value; unlimited number authorized; 262,876 and
262,876 issued and outstanding at March 31, 2017 and December 31,
2016, respectively; redemption amount of $6,572
|
|
6,436
|
|
6,427
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
Common stock, no par
value; unlimited number authorized; 21,458,190 and 21,458,190
issued and outstanding at March 31, 2017 and December 31, 2016,
respectively
|
|
—
|
|
—
|
|
Additional paid-in
capital
|
|
354,127
|
|
353,882
|
|
Accumulated
deficit
|
|
(299,432)
|
|
(297,668)
|
|
Accumulated other
comprehensive loss
|
|
(879)
|
|
(208)
|
|
Shareholders' equity
attributable to common shareholders
|
|
53,816
|
|
56,006
|
|
Noncontrolling
interests in consolidated subsidiaries
|
|
935
|
|
829
|
|
Total Shareholders'
Equity
|
|
54,751
|
|
56,835
|
|
Total Liabilities and
Shareholders' Equity
|
$
|
497,707
|
|
$
|
501,021
|
Non-U.S. GAAP Financial Measures
Segment Operating Income (Loss)
Segment operating income (loss) 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, 2016 for a
detailed description of this non-U.S. GAAP measure.
Adjusted Operating Income (Loss)
Adjusted operating income (loss) 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 income (loss) is comprised of
segment operating income (loss) as well as net investment income
(loss), net realized gains (losses), equity in net income (loss) of
investees and net revenues of 1347 Advisors. A reconciliation
of segment operating income (loss) and adjusted operating income
(loss) to net loss for the three months ended March 31, 2017 and 2016 is presented below:
|
|
|
(in
thousands)
|
Three months ended
March 31,
|
|
2017
|
2016
|
|
Segment operating
income (loss)
|
$
|
762
|
$
|
(395)
|
|
Net investment income
(loss)
|
703
|
(72)
|
|
Net realized gains
(losses)
|
398
|
(171)
|
|
Equity in net income
(loss) of investees
|
2,385
|
(69)
|
|
Revenues of 1347
Advisors, net of related outside professional and advisory
expenses
|
(162)
|
(64)
|
|
Adjusted operating
income (loss)
|
4,086
|
(771)
|
|
Equity in net
(income) loss of investees
|
(2,385)
|
69
|
|
Corporate operating
expenses and other (1)
|
(1,798)
|
(1,837)
|
|
Amortization of
intangible assets
|
(291)
|
(295)
|
|
Impairment of
intangible assets
|
(250)
|
—
|
|
Operating
loss
|
(638)
|
(2,834)
|
|
Equity in net income
(loss) of investees
|
2,385
|
(69)
|
|
Interest expense not
allocated to segments
|
(1,159)
|
(1,093)
|
|
Foreign exchange
losses, net
|
(4)
|
(1)
|
|
(Loss) gain on change
in fair value of debt
|
(1,889)
|
2,528
|
|
Loss before income
tax expense
|
(1,305)
|
(1,469)
|
|
Income tax
expense
|
(179)
|
(26)
|
|
Net loss
|
$
|
(1,484)
|
$
|
(1,495)
|
|
|
|
|
|
|
(1)
|
Corporate operating
expenses and other includes corporate operating expenses and
stock-based compensation expense.
|
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 2016 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 2016 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.
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/kfs2015.
SOURCE Kingsway Financial Services Inc.