Kingsway announces fourth quarter and year-end 2014 results
TORONTO, March 13, 2015 /PRNewswire/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the fourth quarter and year ended December 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, "For the fourth quarter, we continued to report positive adjusted operating income. This result indicates momentum in our progress towards building long-term value.
Mr. Swets continued, "During 2014, we have repaid our senior debt, raised capital, completed the IPO of our former subsidiary and completed the redemption of our Series A Warrants."
Operating Results
The Company reported net income of $1.4 million in the fourth quarter of 2014 compared to net loss of $10.7 million in the fourth quarter of 2013.
Following are highlights of Kingsway's fourth quarter of 2014:
- Insurance Underwriting segment operating income was $1.2 million for the fourth quarter of 2014 compared to operating loss of $3.4 million for the fourth quarter of 2013.
- Insurance Services segment operating income was $0.5 million for the fourth quarter of 2014 compared to operating income of $0.0 million for the fourth quarter of 2013.
- Net investment income of $0.3 million was reported in the fourth quarter of 2014, compared to $0.4 million in the fourth quarter of 2013.
- Net realized losses of $0.4 million were reported in the fourth quarter of 2014 compared to net realized gains of $4.6 million in the fourth quarter of 2013.
- Net loss not allocated to any segment was $0.3 million in the fourth quarter of 2014 compared to $12.3 million in the fourth quarter of 2013. The fourth quarter 2014 result includes loss on change in fair value of debt of $0.8 million compared to $6.2 million in the fourth quarter of 2013.
- Adjusted operating income was $1.5 million in the fourth quarter of 2014 compared with $1.6 million in the fourth quarter of 2013.
- Book value has decreased to $2.12 per share at December 31, 2014 from $2.25 per share at December 31, 2013. The Company also carries a valuation allowance, in the amount of $14.68 per share at December 31, 2014, against the deferred tax asset, primarily related to its loss carryforwards.
Following is a summary of significant events which occurred during 2014:
- The Company closed on its private placement, resulting in net proceeds to the Company of $6.3 million.
- The Company repaid the $14.4 million outstanding on its senior unsecured debentures due February 1, 2014.
- The Company's wholly owned subsidiary, 1347 Property Insurance Holdings, Inc., completed an initial public offering of its common stock.
- The Company sponsored the initial public offering of 1347 Capital Corp., a special purpose acquisition company formed to enter into a business combination with another business.
- The Company completed the redemption of its Series A Warrants, resulting in cash proceeds of $14.8 million.
For a detailed discussion of Kingsway's earnings for the year ended December 31, 2014, as well as other important information, please refer to the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 13, 2015.
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 |
||||||||||||||||||
| Three months ended December 31, |
Years ended December 31, |
|||||||||||||||||
| 2014 |
2013 |
2014 |
2013 |
|||||||||||||||
| Revenues: |
||||||||||||||||||
| Net premiums earned |
$ |
28,500 |
$ |
27,202 |
$ |
117,593 |
$ |
109,608 |
||||||||||
| Service fee and commission income |
12,096 |
12,211 |
54,848 |
49,543 |
||||||||||||||
| Net investment income |
320 |
381 |
1,616 |
2,186 |
||||||||||||||
| Net realized (losses) gains |
(418) |
4,561 |
5,041 |
3,505 |
||||||||||||||
| Other-than-temporary impairment loss |
— |
— |
— |
(1,800) |
||||||||||||||
| Other income |
2,240 |
2,121 |
8,920 |
9,236 |
||||||||||||||
| Total revenues |
42,738 |
46,476 |
188,018 |
172,278 |
||||||||||||||
| Expenses: |
||||||||||||||||||
| Loss and loss adjustment expenses |
21,011 |
19,764 |
86,227 |
87,553 |
||||||||||||||
| Commissions and premium taxes |
5,415 |
4,568 |
23,238 |
23,134 |
||||||||||||||
| Cost of services sold |
543 |
746 |
3,880 |
1,843 |
||||||||||||||
| General and administrative expenses |
14,574 |
21,190 |
67,233 |
79,812 |
||||||||||||||
| Restructuring expense |
16 |
711 |
(13) |
1,861 |
||||||||||||||
| Interest expense |
1,431 |
1,695 |
5,645 |
7,263 |
||||||||||||||
| Amortization of intangible assets |
400 |
612 |
1,620 |
2,186 |
||||||||||||||
| Contingent consideration (benefit) expense |
(3,024) |
320 |
(2,223) |
785 |
||||||||||||||
| Impairment of asset held for sale |
— |
944 |
1,180 |
2,390 |
||||||||||||||
| Total expenses |
40,366 |
50,550 |
186,787 |
206,827 |
||||||||||||||
| Income (loss) from continuing operations before loss on |
2,372 |
(4,074) |
1,231 |
(34,549) |
||||||||||||||
| Loss on change in fair value of debt |
(754) |
2(6,248) |
(10,953) |
(9,060) |
||||||||||||||
| Loss on disposal of subsidiary |
(2) |
— |
(1,244) |
— |
||||||||||||||
| Loss on disposal of asset held for sale |
(125) |
— |
(125) |
— |
||||||||||||||
| Loss on buy-back of debt |
— |
— |
— |
(24) |
||||||||||||||
| Equity in net (loss) income of investee |
(107) |
— |
(190) |
255 |
||||||||||||||
| Income (loss) from continuing operations before income tax |
1,384 |
(10,322) |
(11,281) |
(43,378) |
||||||||||||||
| Income tax expense (benefit) |
33 |
331 |
(57) |
(67) |
||||||||||||||
| Income (loss) from continuing operations |
1,351 |
(10,653) |
(11,224) |
(43,311) |
||||||||||||||
| Gain on liquidation of subsidiaries, net of taxes |
— |
— |
— |
7,227 |
||||||||||||||
| Net income (loss) |
1,351 |
(10,653) |
(11,224) |
(36,084) |
||||||||||||||
| Less: net income attributable to noncontrolling interests in |
723 |
370 |
1,596 |
777 |
||||||||||||||
| Net income (loss) attributable to Kingsway |
628 |
(11,023) |
(12,820) |
(36,861) |
||||||||||||||
| Less: dividends on preferred stock |
82 |
— |
300 |
— |
||||||||||||||
| Net income (loss) attributable to common shareholders |
$ |
546 |
$ |
(11,023) |
$ |
(13,120) |
$ |
(36,861) |
||||||||||
| Earnings (loss) per share - continuing operations: |
||||||||||||||||||
| Basic: |
$ |
0.03 |
$ |
(0.67) |
$ |
(0.75) |
$ |
(3.12) |
||||||||||
| Diluted: |
$ |
0.03 |
$ |
(0.67) |
$ |
(0.75) |
$ |
(3.12) |
||||||||||
| Earnings (loss) per share – net income (loss) attributable to |
||||||||||||||||||
| Basic |
$ |
0.03 |
$ |
(0.67) |
$ |
(0.75) |
$ |
(2.61) |
||||||||||
| Diluted: |
$ |
0.03 |
$ |
(0.67) |
$ |
(0.75) |
$ |
(2.61) |
||||||||||
| Weighted average shares outstanding (in '000s): |
||||||||||||||||||
| Basic: |
19,710 |
16,430 |
17,398 |
14,111 |
||||||||||||||
| Diluted: |
19,710 |
16,430 |
17,398 |
14,111 |
||||||||||||||
| Consolidated Balance Sheets |
|||||||||||
| December 31, 2014 |
December 31, 2013 |
||||||||||
| Assets |
|||||||||||
| Investments: |
|||||||||||
| Fixed maturities, at fair value (amortized cost of $56,000 and $53,455, respectively) |
$ |
56,195 |
$ |
54,151 |
|||||||
| Equity investments, at fair value (cost of $16,579 and $3,554, respectively) |
19,618 |
7,137 |
|||||||||
| Limited liability investments |
7,294 |
4,406 |
|||||||||
| Other investments, at cost which approximates fair value |
3,576 |
3,000 |
|||||||||
| Short-term investments, at cost which approximates fair value |
400 |
501 |
|||||||||
| Total investments |
87,083 |
69,195 |
|||||||||
| Cash and cash equivalents |
74,026 |
98,589 |
|||||||||
| Investment in investee |
2,115 |
— |
|||||||||
| Accrued investment income |
141 |
614 |
|||||||||
| Premiums receivable, net of allowance for doubtful accounts of $1,889 and $2,123, respectively |
28,885 |
32,035 |
|||||||||
| Service fee receivable, net of allowance for doubtful accounts of $247 and $0, respectively |
19,970 |
19,012 |
|||||||||
| Other receivables, net of allowance for doubtful accounts of $806 and $1,062, respectively |
5,402 |
4,097 |
|||||||||
| Reinsurance recoverable |
3,652 |
10,335 |
|||||||||
| Prepaid reinsurance premiums |
8 |
6,816 |
|||||||||
| Deferred acquisition costs, net |
12,197 |
12,392 |
|||||||||
| Income taxes recoverable |
223 |
— |
|||||||||
| Property and equipment, net of accumulated depreciation of $17,290 and $15,848, respectively |
6,169 |
1,662 |
|||||||||
| Goodwill |
10,588 |
10,588 |
|||||||||
| Intangible assets, net of accumulated amortization of $20,203 and $18,583, respectively |
47,298 |
48,918 |
|||||||||
| Other assets |
3,965 |
4,039 |
|||||||||
| Asset held for sale |
— |
6,347 |
|||||||||
| Total Assets |
$ |
301,722 |
$ |
324,639 |
|||||||
| Liabilities and Shareholders' Equity |
|||||||||||
| Liabilities: |
|||||||||||
| Unpaid loss and loss adjustment expenses: |
|||||||||||
| Property and casualty |
$ |
63,895 |
$ |
84,534 |
|||||||
| Vehicle service agreements |
2,975 |
3,128 |
|||||||||
| Total unpaid loss and loss adjustment expenses |
66,870 |
87,662 |
|||||||||
| Unearned premiums |
36,432 |
48,577 |
|||||||||
| Reinsurance payable |
525 |
1,033 |
|||||||||
| LROC preferred units, at fair value |
13,618 |
14,854 |
|||||||||
| Senior unsecured debentures, at fair value |
— |
14,356 |
|||||||||
| Subordinated debt, at fair value |
40,659 |
28,471 |
|||||||||
| Deferred income tax liability |
5,386 |
4,173 |
|||||||||
| Deferred service fees |
49,454 |
48,788 |
|||||||||
| Income taxes payable |
— |
2,984 |
|||||||||
| Accrued expenses and other liabilities |
40,582 |
36,821 |
|||||||||
| Total Liabilities |
253,526 |
287,719 |
|||||||||
| Class A preferred stock, no par value; unlimited number authorized; 262,876 and zero issued and |
6,330 |
— |
|||||||||
| Shareholders' Equity: |
|||||||||||
| Common stock, no par value; unlimited number authorized; 19,709,706 and 16,429,761 issued and |
— |
— |
|||||||||
| Additional paid-in capital |
340,844 |
324,803 |
|||||||||
| Accumulated deficit |
(312,050) |
(298,930) |
|||||||||
| Accumulated other comprehensive income |
8,670 |
9,601 |
|||||||||
| Shareholders' equity attributable to common shareholders |
37,464 |
35,474 |
|||||||||
| Noncontrolling interests in consolidated subsidiaries |
4,402 |
1,446 |
|||||||||
| Total Shareholders' Equity |
41,866 |
36,920 |
|||||||||
| Total Liabilities and Shareholders' Equity |
$ |
301,722 |
$ |
324,639 |
|||||||
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, 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 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, net realized (losses) gains, other-than-temporary impairment loss, equity in net (loss) income of investee and net revenues of 1347 Advisors. A reconciliation of segment operating income (loss) and adjusted operating income (loss) to net income (loss) for the quarter and years ended December 31, 2014 and 2013 is presented below:
| (in thousands) |
Three months ended December 31, |
Years ended December 31, |
|||||||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||||||||
| Segment operating income (loss) |
$ |
1,687 |
$ |
(3,311) |
$ |
6,099 |
$ |
(13,490) |
|||||||
| Net investment income |
320 |
381 |
1,616 |
2,186 |
|||||||||||
| Net realized (losses) gains |
(418) |
4,561 |
5,041 |
3,505 |
|||||||||||
| Other-than-temporary impairment loss |
— |
— |
— |
(1,800) |
|||||||||||
| Equity in net (loss) income from investee |
(107) |
— |
(190) |
255 |
|||||||||||
| Revenues of 1347 Advisors, net of related outside |
54 |
— |
79 |
— |
|||||||||||
| Adjusted operating income (loss) |
1,536 |
1,631 |
12,645 |
(9,344) |
|||||||||||
| Corporate operating expenses and other (1) |
(464) |
(3,164) |
(7,719) |
(11,140) |
|||||||||||
| Interest expense |
(1,431) |
(1,695) |
(5,645) |
(7,263) |
|||||||||||
| Amortization of intangible assets |
(400) |
(612) |
(1,620) |
(2,186) |
|||||||||||
| Contingent consideration benefit (expense) |
3,024 |
(320) |
2,223 |
(785) |
|||||||||||
| Impairment of asset held for sale |
— |
(944) |
(1,180) |
(2,390) |
|||||||||||
| Loss on change in fair value of debt |
(754) |
(6,248) |
(10,953) |
(9,060) |
|||||||||||
| Loss on disposal of subsidiary |
(2) |
— |
(1,244) |
— |
|||||||||||
| Loss on disposal of asset held for sale |
(125) |
— |
(125) |
— |
|||||||||||
| Income (loss) from disposed subsidiary |
— |
1,030 |
2,337 |
(1,186) |
|||||||||||
| Loss on buy-back of debt |
— |
— |
— |
(24) |
|||||||||||
| Income (loss) from continuing operations before |
1,384 |
(10,322) |
(11,281) |
(43,378) |
|||||||||||
| Income tax (expense) benefit |
(33) |
(331) |
57 |
67 |
|||||||||||
| Income (loss) from continuing operations |
1,351 |
(10,653) |
(11,224) |
(43,311) |
|||||||||||
| Gain on liquidation of subsidiaries, net of taxes |
— |
— |
— |
7,227 |
|||||||||||
| Net income (loss) |
$ |
1,351 |
$ |
(10,653) |
$ |
(11,224) |
$ |
(36,084) |
|||||||
| (1) |
Corporate operating expenses and other includes corporate operating expenses, foreign exchange gains (losses), stock-based compensation |
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 2014 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 2014 Annual Report, 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.
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