TORONTO, May 8, 2014 /CNW/ - (TSX: KFS, NYSE: KFS) Kingsway Financial
Services Inc. ("Kingsway" or the "Company") today announced its
operating results for the first quarter ended March 31, 2014. All
amounts are in U.S. dollars unless indicated otherwise.
Management Comments
Larry G. Swets, Jr., the Company's President and Chief Executive
Officer, stated, "We are pleased to report a quarterly result that
provides further evidence of turning the corner we discussed in the
shareholder letter. During the quarter we eliminated our senior debt,
raised capital and completed the IPO of our former wholly owned
subsidiary, 1347 Property Insurance Holdings, Inc. As importantly, the
improvement in the adjusted operating income of our segments provides
the foundation for further value creation."
Mr. Swets continued, "The turnaround in the Insurance Underwriting
segment is an important milestone for the Company and reflects a
significant amount of effort from the team dedicated to writing
profitable premium. This stability will allow us to accelerate other
merchant banking activity."
Operating Results
The Company reported net loss of $1.0 million for the first quarter of
2014, compared to net loss of $17.3 million for the prior-year period.
The Company also reported adjusted operating income, a non-U.S. GAAP
measure defined below, of $2.7 million for the first quarter of 2014,
compared to adjusted operating loss of $0.2 million for the prior-year
period. The Company looks at adjusted operating income (loss) as a way
of assessing the profitability and progress of the subsidiaries in its
Insurance Underwriting and Insurance Services segments.
Following are highlights of Kingsway's first quarter of 2014:
-
The Insurance Underwriting segment recorded operating income of $0.3
million for the first quarter of 2014, compared to operating loss of
$3.0 million in the prior-year period.
-
The Insurance Services segment recorded operating income of $1.9 million
for the first quarter of 2014, flat from $1.9 million in the prior-year
period.
-
Net investment income of $0.4 million was recorded in the first quarter
of 2014, compared to $0.6 million in the prior-year period.
-
Net realized gains of $0.0 million were recorded in the first quarter of
2014, compared to net realized losses of $1.4 million in the prior-year
period.
-
Net loss of $3.6 million not allocated to any segment was recorded in
the first quarter of 2014, compared to net loss of $15.4 million in the
prior-year period. The 2014 result includes gain on change in fair
value of debt of $0.6 million, compared to loss on change in fair value
of debt of $9.0 million in the prior-year period.
-
Book value has increased from $2.25 per share at December 31, 2013 to
$2.69 per share at March 31, 2014. The Company also carries a valuation
allowance, in the amount of $17.25 per share at March 31, 2014, against
the deferred tax asset, primarily related to its loss carryforwards.
For a detailed discussion of Kingsway's earnings for the first quarter
ended March 31, 2014 as well as other important information, please
refer to our Quarterly Report on Form 10-Q filed with the U.S.
Securities and Exchange Commission on May 8, 2014. Our Annual Letter to
Shareholders may be accessed at the Company's website or directly at http://bit.ly/kfs2013.
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,
|
|
|
|
2014
|
|
|
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
Net premiums earned
|
$
|
31,920
|
|
$
|
28,068
|
|
|
Service fee and commission income
|
|
14,724
|
|
|
13,124
|
|
|
Net investment income
|
|
413
|
|
|
580
|
|
|
Net realized gains (losses)
|
|
39
|
|
|
(1,409)
|
|
|
Other income
|
|
2,071
|
|
|
2,218
|
|
Total revenues
|
|
49,167
|
|
|
42,581
|
|
Expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses
|
|
21,061
|
|
|
21,831
|
|
|
Commissions and premium taxes
|
|
6,553
|
|
|
6,712
|
|
|
Cost of services sold
|
|
856
|
|
|
—
|
|
|
General and administrative expenses
|
|
18,524
|
|
|
19,604
|
|
|
Restructuring expense
|
|
20
|
|
|
780
|
|
|
Interest expense
|
|
1,433
|
|
|
1,833
|
|
|
Amortization of intangible assets
|
|
414
|
|
|
558
|
|
|
Contingent consideration expense
|
|
267
|
|
|
155
|
|
Total expenses
|
|
49,128
|
|
|
51,473
|
Income (loss) before gain (loss) on change in fair value of debt, loss
on disposal of subsidiary,
loss on buy-back of debt, equity in net income of investee and income
tax expense (benefit)
|
|
39
|
|
|
(8,892)
|
|
Gain (loss) on change in fair value of debt
|
|
563
|
|
|
(8,951)
|
|
Loss on disposal of subsidiary
|
|
(1,242)
|
|
|
—
|
|
Loss on buy-back of debt
|
|
—
|
|
|
(24)
|
|
Equity in net income of investee
|
|
—
|
|
|
255
|
|
Loss before income tax expense (benefit)
|
|
(640)
|
|
|
(17,612)
|
|
Income tax expense (benefit)
|
|
366
|
|
|
(276)
|
|
Net loss
|
|
(1,006)
|
|
|
(17,336)
|
|
|
Less: net income attributable to noncontrolling interests in
consolidated subsidiaries
|
|
653
|
|
|
95
|
|
|
Less: dividends on preferred stock
|
|
53
|
|
|
—
|
|
|
Net loss attributable to common shareholders
|
$
|
(1,712)
|
|
$
|
(17,431)
|
|
Loss per share - net loss attributable to common shareholders:
|
|
|
|
|
|
|
Basic:
|
$
|
(0.10)
|
|
$
|
(1.33)
|
|
Diluted:
|
|
(0.10)
|
|
|
(1.33)
|
|
Weighted average shares outstanding (in '000s):
|
|
|
|
|
|
|
Basic:
|
|
16,430
|
|
|
13,149
|
|
Diluted:
|
|
16,430
|
|
|
13,149
|
|
Consolidated Balance Sheets
|
|
(in thousands, except per share data)
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(unaudited)
|
|
|
|
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Assets
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Fixed maturities, at fair value (amortized cost of $50,778 and $53,455,
respectively)
|
$
|
51,456
|
|
$
|
54,151
|
|
|
Equity investments, at fair value (cost of $5,103 and $3,554,
respectively)
|
|
9,982
|
|
|
7,137
|
|
|
Limited liability investments
|
|
4,701
|
|
|
4,406
|
|
|
Other investments, at cost which approximates fair value
|
|
2,000
|
|
|
3,000
|
|
|
Short-term investments, at cost which approximates fair value
|
|
401
|
|
|
501
|
|
Total investments
|
|
68,540
|
|
|
69,195
|
|
Cash and cash equivalents
|
|
72,080
|
|
|
98,589
|
|
Investment in investee
|
|
7,661
|
|
|
—
|
|
Accrued investment income
|
|
1,096
|
|
|
614
|
|
Premiums receivable, net of allowance for doubtful accounts of $1,839
and $2,123, respectively
|
|
32,609
|
|
|
32,035
|
|
Service fee receivable, net of allowance for doubtful accounts of $245
and $0, respectively
|
|
22,622
|
|
|
19,012
|
|
Other receivables, net of allowance for doubtful accounts of $1,061 and
$1,062, respectively
|
|
5,106
|
|
|
4,097
|
|
Reinsurance recoverable
|
|
7,569
|
|
|
10,335
|
|
Prepaid reinsurance premiums
|
|
148
|
|
|
6,816
|
|
Deferred acquisition costs, net
|
|
12,559
|
|
|
12,392
|
|
Property and equipment, net of accumulated depreciation of $15,894 and
$15,848, respectively
|
|
1,671
|
|
|
1,662
|
|
Goodwill
|
|
10,588
|
|
|
10,588
|
|
Intangible assets, net of accumulated amortization of $18,997 and
$18,583, respectively
|
|
48,504
|
|
|
48,918
|
|
Other assets
|
|
3,525
|
|
|
4,039
|
|
Asset held for sale
|
|
6,347
|
|
|
6,347
|
|
Total Assets
|
$
|
300,625
|
|
$
|
324,639
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Unpaid loss and loss adjustment expenses:
|
|
|
|
|
|
|
|
Property and casualty
|
$
|
77,285
|
|
$
|
84,534
|
|
|
Vehicle service agreements
|
|
3,128
|
|
|
3,128
|
|
Total unpaid loss and loss adjustment expenses
|
|
80,413
|
|
|
87,662
|
|
Unearned premiums
|
|
40,979
|
|
|
48,577
|
|
Reinsurance payable
|
|
145
|
|
|
1,033
|
|
LROC preferred units, at fair value
|
|
14,291
|
|
|
14,854
|
|
Senior unsecured debentures, at fair value
|
|
—
|
|
|
14,356
|
|
Subordinated debt, at fair value
|
|
28,471
|
|
|
28,471
|
|
Deferred income tax liability
|
|
4,456
|
|
|
4,173
|
|
Deferred service fees
|
|
49,262
|
|
|
48,788
|
|
Income taxes payable
|
|
921
|
|
|
2,984
|
|
Accrued expenses and other liabilities
|
|
37,538
|
|
|
36,821
|
|
Total Liabilities
|
$
|
256,476
|
|
$
|
287,719
|
|
Shareholders' Equity:
|
|
|
|
|
|
Class A preferred stock, no par value; unlimited number authorized;
262,876 and zero issued
and outstanding at March 31, 2014 and December 31, 2013, respectively
|
$
|
6,402
|
|
$
|
—
|
Common stock, no par value; unlimited number authorized; 16,429,761 and
16,429,761 issued
and outstanding at March 31, 2014 and December 31, 2013, respectively
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
|
325,427
|
|
|
324,803
|
|
Accumulated deficit
|
|
(300,640)
|
|
|
(298,930)
|
|
Accumulated other comprehensive income
|
|
10,973
|
|
|
9,601
|
|
Shareholders' equity attributable to common shareholders
|
|
42,162
|
|
|
35,474
|
|
Noncontrolling interests in consolidated subsidiaries
|
|
1,987
|
|
|
1,446
|
|
Total Shareholders' Equity
|
|
44,149
|
|
|
36,920
|
|
Total Liabilities and Shareholders' Equity
|
$
|
300,625
|
|
$
|
324,639
|
Non-U.S. GAAP Financial Measures
Operating Income (Loss)
Operating income (loss) represents one measure of the pretax
profitability of our 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 Quarterly Report on
Form 10-Q for the quarter ended March 31, 2014 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 our segments. Adjusted
operating income (loss) is computed by adding to operating income
(loss) the net investment income, net realized gains and depreciation
attributable to our segments. A reconciliation of operating income
(loss) and adjusted operating income (loss) to net loss for the three
months ended March 31, 2014 and 2013 is presented below:
|
|
|
|
(in thousands)
|
Three months ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Operating income (loss)
|
|
2,171
|
|
|
(1,129)
|
|
Net investment income of segments
|
|
263
|
|
|
281
|
|
Net realized gains of segments
|
|
39
|
|
|
309
|
|
Depreciation of segments
|
|
255
|
|
|
356
|
|
Adjusted operating income (loss)
|
|
2,728
|
|
|
(183)
|
|
Net investment income not included in adjusted operating income (loss)
|
|
151
|
|
|
299
|
|
Net realized gains (losses) not included in adjusted operating income
(loss)
|
|
—
|
|
|
(1,718)
|
|
Other income and expenses not allocated to segments, net
|
|
153
|
|
|
(4,388)
|
|
Depreciation of segments
|
|
(255)
|
|
|
(356)
|
|
Stock based compensation expense, net of forfeitures
|
|
(624)
|
|
|
—
|
|
Interest expense
|
|
(1,433)
|
|
|
(1,833)
|
|
Amortization of intangible assets
|
|
(414)
|
|
|
(558)
|
|
Contingent consideration expense
|
|
(267)
|
|
|
(155)
|
|
Gain (loss) on change in fair value of debt
|
|
563
|
|
|
(8,951)
|
|
Loss on disposal of subsidiary
|
|
(1,242)
|
|
|
—
|
|
Loss on buy-back of debt
|
|
—
|
|
|
(24)
|
|
Equity in net income of investee
|
|
—
|
|
|
255
|
|
Loss before income tax (expense) benefit
|
|
(640)
|
|
|
(17,612)
|
|
Income tax (expense) benefit
|
|
(366)
|
|
|
276
|
|
Net loss
|
|
(1,006)
|
|
|
(17,336)
|
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, including, without
limitation, our potential inability to complete the proposed private
placement. 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 2013 Annual Report on Form 10-K and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
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 2013
Annual Report and its Quarterly Report on Form 10-Q for the quarter
ended March 31, 2014, 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.
