Attached files
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| 8-K - 8-K - KINGSWAY FINANCIAL SERVICES INC | a8k10-21x2016.htm |
Exhibit 99.1
KINGSWAY ANNOUNCES THIRD QUARTER 2016 RESULTSToronto, Ontario (October 21, 2016) - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. (“Kingsway” or the “Company”) today announced its operating results for the third quarter and nine months ended September 30, 2016. All amounts are in U.S. dollars unless indicated otherwise.
Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, “We were pleased to report a solid and profitable quarter, highlighted by a gain on our business combination between 1347 Capital Corp. and Limbach Holdings, LLC. We were also pleased to close our previously announced acquisition of CMC Industries, Inc., which enables us to deploy capital while utilizing our deferred tax asset in a way that will build long-term economic value for our shareholders.”
Operating Results
The Company reported net income attributable to common shareholders of $1.4 million, or $0.06 per diluted share, in the third quarter of 2016, compared to net loss attributable to common shareholders of $0.9 million, or $0.05 per diluted share, in the third quarter of 2015.
For the nine months ended September 30, 2016, Kingsway reported net loss attributable to common shareholders of $0.7 million, or $0.04 per diluted share, compared to net income attributable to common shareholders of $3.1 million, or $0.15 per diluted share, in the prior year period.
Following are highlights of Kingsway’s third quarter 2016 results. Operating income (loss) reflects the Company’s core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses. Operating income (loss) excludes interest expense allocated to the Company’s segments.
• | Operating income was $1.0 million for the third quarter of 2016 compared to operating loss of $1.8 million for the third quarter of 2015. |
◦ | Insurance Underwriting segment operating loss was $0.1 million for the third quarter of 2016 compared to $0.2 million for the third quarter of 2015. |
◦ | Insurance Services segment operating income was $0.6 million for the third quarter of 2016 compared to segment operating loss of $0.2 million for the third quarter of 2015. |
◦ | Operating income attributable to the Leased Real Estate segment was $2.1 million for the third quarter of 2016 compared to zero for the third quarter of 2015. Net of interest expense allocated to the segment, the Leased Real Estate segment operating income was $0.7 million for the third quarter of 2016 compared to zero for the third quarter of 2015. The Leased Real Estate segment includes CMC Industries, Inc. |
◦ | Net investment income of $1.0 million was reported for the third quarter of 2016 compared to $0.8 million for the third quarter of 2015. |
◦ | Net realized gains of $0.0 million were reported for the third quarter of 2016 compared to $0.1 million for the third quarter of 2015. |
◦ | Other operating income and expense was a net expense of $2.6 million for the third quarter of 2016 compared to $2.3 million for the third quarter of 2015. |
• | Adjusted operating income was $2.0 million for the third quarter of 2016 compared to $0.1 million for the third quarter of 2015. |
• | Book value decreased to $2.15 per share at September 30, 2016 from $2.22 per share at December 31, 2015, and increased from $2.14 per share at June 30, 2016. The Company also carries a valuation allowance, in the amount of $11.50 per share at September 30, 2016, against the deferred tax asset, primarily related to its loss carryforwards. |
Exhibit 99.1
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.”
Exhibit 99.1
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues: | ||||||||||||||||
Net premiums earned | $ | 32,949 | $ | 29,197 | $ | 94,189 | $ | 88,427 | ||||||||
Service fee and commission income | 6,330 | 6,184 | 17,046 | 17,430 | ||||||||||||
Rental income | 2,426 | — | 2,426 | — | ||||||||||||
Net investment income | 1,036 | 791 | 2,036 | 2,632 | ||||||||||||
Net realized gains (losses) | 46 | 83 | (58 | ) | 136 | |||||||||||
Other-than-temporary impairment loss | — | — | — | (10 | ) | |||||||||||
Other income | 3,038 | 2,303 | 8,203 | 13,174 | ||||||||||||
Total revenues | 45,825 | 38,558 | 123,842 | 121,789 | ||||||||||||
Operating expenses: | ||||||||||||||||
Loss and loss adjustment expenses | 26,804 | 22,914 | 75,139 | 69,054 | ||||||||||||
Commissions and premium taxes | 5,928 | 5,653 | 17,629 | 17,199 | ||||||||||||
Cost of services sold | 1,381 | 1,408 | 2,924 | 3,129 | ||||||||||||
General and administrative expenses | 9,949 | 9,997 | 30,326 | 31,748 | ||||||||||||
Amortization of intangible assets | 779 | 307 | 1,381 | 937 | ||||||||||||
Contingent consideration (benefit) expense | — | 110 | (657 | ) | 364 | |||||||||||
Total operating expenses | 44,841 | 40,389 | 126,742 | 122,431 | ||||||||||||
Operating income (loss) | 984 | (1,831 | ) | (2,900 | ) | (642 | ) | |||||||||
Other (revenues) expenses, net: | ||||||||||||||||
Interest expense | 2,448 | 1,248 | 4,649 | 4,053 | ||||||||||||
Foreign exchange losses, net | 4 | 58 | 14 | 1,210 | ||||||||||||
Loss (gain) on change in fair value of debt | 2,472 | (2,458 | ) | (1,124 | ) | (1,491 | ) | |||||||||
(Gain) loss on deconsolidation of subsidiary | (5,643 | ) | — | (5,643 | ) | 4,420 | ||||||||||
Equity in net loss of investees | 61 | 192 | 1,004 | 399 | ||||||||||||
Total other (revenues) expenses, net | (658 | ) | (960 | ) | (1,100 | ) | 8,591 | |||||||||
Income (loss) from continuing operations before income tax expense | 1,642 | (871 | ) | (1,800 | ) | (9,233 | ) | |||||||||
Income tax expense | 55 | 23 | 107 | 79 | ||||||||||||
Income (loss) from continuing operations | 1,587 | (894 | ) | (1,907 | ) | (9,312 | ) | |||||||||
Income from discontinued operations, net of taxes | — | — | — | 1,426 | ||||||||||||
Gain on disposal of discontinued operations, net of taxes | — | — | 1,124 | 11,259 | ||||||||||||
Net income (loss) | 1,587 | (894 | ) | (783 | ) | 3,373 | ||||||||||
Less: net income (loss) attributable to noncontrolling interests in consolidated subsidiaries | 48 | (86 | ) | (352 | ) | 74 | ||||||||||
Less: dividends on preferred stock | 110 | 83 | 274 | 246 | ||||||||||||
Net income (loss) attributable to common shareholders | $ | 1,429 | $ | (891 | ) | $ | (705 | ) | $ | 3,053 | ||||||
Earnings (loss) per share - continuing operations: | ||||||||||||||||
Basic: | $ | 0.07 | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.49 | ) | |||||
Diluted: | $ | 0.06 | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.49 | ) | |||||
Earnings per share - discontinued operations: | ||||||||||||||||
Basic: | $ | — | $ | — | $ | 0.06 | $ | 0.64 | ||||||||
Diluted: | $ | — | $ | — | $ | 0.06 | $ | 0.64 | ||||||||
Earnings (loss) per share – net income (loss) attributable to common shareholders: | ||||||||||||||||
Basic: | $ | 0.07 | $ | (0.05 | ) | $ | (0.04 | ) | $ | 0.15 | ||||||
Diluted: | $ | 0.06 | $ | (0.05 | ) | $ | (0.04 | ) | $ | 0.15 | ||||||
Weighted average shares outstanding (in ‘000s): | ||||||||||||||||
Basic: | 19,843 | 19,710 | 19,791 | 19,710 | ||||||||||||
Diluted: | 22,958 | 19,710 | 19,791 | 19,710 | ||||||||||||
Exhibit 99.1
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, 2016 | December 31, 2015 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturities, at fair value (amortized cost of $60,934 and $55,606, respectively) | $ | 61,326 | $ | 55,559 | ||||
Equity investments, at fair value (cost of $21,145 and $26,428, respectively) | 21,518 | 27,559 | ||||||
Limited liability investments | 29,091 | 20,141 | ||||||
Other investments, at cost which approximates fair value | 7,251 | 4,077 | ||||||
Short-term investments, at cost which approximates fair value | 670 | 400 | ||||||
Total investments | 119,856 | 107,736 | ||||||
Cash and cash equivalents | 30,705 | 51,701 | ||||||
Investments in investees | 3,129 | 1,772 | ||||||
Accrued investment income | 535 | 594 | ||||||
Premiums receivable, net of allowance for doubtful accounts of $135 and $165, respectively | 33,570 | 27,090 | ||||||
Service fee receivable, net of allowance for doubtful accounts of $295 and $276, respectively | 1,278 | 911 | ||||||
Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively | 4,979 | 3,789 | ||||||
Reinsurance recoverable | 830 | 1,422 | ||||||
Prepaid reinsurance premiums | 49 | 7 | ||||||
Deferred acquisition costs, net | 14,553 | 12,143 | ||||||
Income taxes recoverable | — | 61 | ||||||
Property and equipment, net of accumulated depreciation of $9,613 and $12,537, respectively | 91,239 | 5,577 | ||||||
Goodwill | 10,078 | 10,078 | ||||||
Intangible assets, net of accumulated amortization of $7,320 and $6,009, respectively | 123,178 | 14,736 | ||||||
Other assets | 4,823 | 3,405 | ||||||
Total Assets | $ | 438,802 | $ | 241,022 | ||||
Liabilities and Shareholders' Equity | ||||||||
Liabilities: | ||||||||
Unpaid loss and loss adjustment expenses: | ||||||||
Property and casualty | $ | 48,991 | $ | 55,471 | ||||
Vehicle service agreements | 3,055 | 2,975 | ||||||
Total unpaid loss and loss adjustment expenses | 52,046 | 58,446 | ||||||
Unearned premiums | 42,650 | 35,234 | ||||||
Reinsurance payable | 241 | 145 | ||||||
Note payable | 190,931 | — | ||||||
Subordinated debt, at fair value | 38,774 | 39,898 | ||||||
Deferred income tax liability | 6,086 | 2,924 | ||||||
Deferred service fees | 36,641 | 34,319 | ||||||
Income taxes payable | 2,031 | — | ||||||
Accrued expenses and other liabilities | 20,411 | 19,959 | ||||||
Total Liabilities | 389,811 | 190,925 | ||||||
Class A preferred stock, no par value; unlimited number authorized; 262,876 and 262,876 issued and outstanding at September 30, 2016 and December 31, 2015, respectively; redemption amount of $6,572 | 6,419 | 6,394 | ||||||
Shareholders' Equity: | ||||||||
Common stock, no par value; unlimited number authorized; 19,842,806 and 19,709,706 issued and outstanding at September 30, 2016 and December 31, 2015, respectively | — | — | ||||||
Additional paid-in capital | 343,106 | 341,646 | ||||||
Accumulated deficit | (310,493 | ) | (308,995 | ) | ||||
Accumulated other comprehensive income | 9,195 | 9,300 | ||||||
Shareholders' equity attributable to common shareholders | 41,808 | 41,951 | ||||||
Noncontrolling interests in consolidated subsidiaries | 764 | 1,752 | ||||||
Total Shareholders' Equity | 42,572 | 43,703 | ||||||
Total Liabilities and Shareholders' Equity | $ | 438,802 | $ | 241,022 | ||||
Exhibit 99.1
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, 2015 for a detailed description of this non-U.S. GAAP measure.
Adjusted Operating Income
Adjusted operating 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 income is comprised of segment operating income (loss) as well as net investment income, net realized gains (losses), other-than-temporary impairment loss, equity in net loss of investees and net revenues of 1347 Advisors. A reconciliation of segment operating income (loss) and adjusted operating income to net income (loss) for the three and nine months ended September 30, 2016 and 2015 is presented below:
(in thousands) | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Segment operating income (loss) | $ | 1,153 | $ | (401 | ) | $ | 159 | $ | (847 | ) | ||||||
Net investment income | 1,036 | 791 | 2,036 | 2,632 | ||||||||||||
Net realized gains (losses) | 46 | 83 | (58 | ) | 136 | |||||||||||
Other-than-temporary impairment loss | — | — | — | (10 | ) | |||||||||||
Equity in net loss of investees | (61 | ) | (192 | ) | (1,004 | ) | (399 | ) | ||||||||
Revenues of 1347 Advisors, net of related outside professional and advisory expenses | (219 | ) | (133 | ) | (564 | ) | 5,806 | |||||||||
Adjusted operating income | 1,955 | 148 | 569 | 7,318 | ||||||||||||
Corporate operating expenses and other (1) | (1,572 | ) | (1,754 | ) | (5,068 | ) | (7,058 | ) | ||||||||
Amortization of intangible assets | (779 | ) | (307 | ) | (1,381 | ) | (937 | ) | ||||||||
Contingent consideration benefit (expense) | — | (110 | ) | 657 | (364 | ) | ||||||||||
Interest expense not allocated to segments | (1,129 | ) | (1,248 | ) | (3,330 | ) | (4,053 | ) | ||||||||
Foreign exchange losses, net | (4 | ) | (58 | ) | (14 | ) | (1,210 | ) | ||||||||
(Loss) gain on change in fair value of debt | (2,472 | ) | 2,458 | 1,124 | 1,491 | |||||||||||
Gain (loss) on deconsolidation of subsidiary | 5,643 | — | 5,643 | (4,420 | ) | |||||||||||
Income (loss) from continuing operations before income tax expense | 1,642 | (871 | ) | (1,800 | ) | (9,233 | ) | |||||||||
Income tax expense | (55 | ) | (23 | ) | (107 | ) | (79 | ) | ||||||||
Income (loss) from continuing operations | 1,587 | (894 | ) | (1,907 | ) | (9,312 | ) | |||||||||
Income from discontinued operations, net of taxes | — | — | — | 1,426 | ||||||||||||
Gain on disposal of discontinued operations, net of taxes | — | — | 1,124 | 11,259 | ||||||||||||
Net income (loss) | $ | 1,587 | $ | (894 | ) | $ | (783 | ) | $ | 3,373 | ||||||
(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. |
Exhibit 99.1
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 2015 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 2015 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.