Kingsway signals accelerating M&A pace with 6 acquisitions year-to-date and KSX segment momentum

Earnings Call Insights: Kingsway Financial Services Inc. (KFS) Q3 2025

MANAGEMENT VIEW

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John Fitzgerald, President and CEO, opened the call by highlighting Kingsway's unique position as "the only publicly traded U.S. company employing the Search Fund model to acquire and build great businesses." He reported, "Revenues were up 37% year-over-year, and the company reached an important milestone as our high-growth KSX segment represented the majority of our revenue for the first time." Fitzgerald noted that the KSX segment's revenue grew 104% and adjusted EBITDA increased 90%. He pointed to strong organic momentum, stating "Roundhouse and Kingsway Skilled Trades have performed well since day 1 and are ahead of our underwriting case." He also emphasized the acceleration of cash sales in the Extended Warranty segment, which were up 14.2% year-over-year in Q3.

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Fitzgerald announced the completion of four acquisitions during the quarter, with three closed mid-quarter, and a major addition: "On August 14, we completed our 12th KSX acquisition with the purchase of Southside Plumbing for a purchase price of $5.625 million, plus a potential earn-out of up to $1.125 million for a total maximum purchase price of $6.75 million." He added the segment now has "three OIRs actively searching for our next platform acquisitions."

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Fitzgerald provided an update on run rate metrics, stating "our trailing 12-month adjusted run rate EBITDA for the businesses we own stands at approximately $20.5 million to $22.5 million."

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Kent Hansen, Executive VP & CFO, reported, "For the third quarter, consolidated revenue was $37.2 million, an increase of 37% compared to $27.1 million in the prior year. Adjusted consolidated EBITDA was $2.1 million for the 3 months ended September 30, 2025, compared to $3 million in the prior quarter."

OUTLOOK

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Fitzgerald signaled that Kingsway has "now acquired 6 high-quality asset-light services businesses, exceeding our target of 3 to 5 per year. While that range remains an important benchmark, it is worth noting that it serves as a target, not a cap." He reported "a robust pipeline of attractive opportunities" and a commitment to disciplined investing.

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Management expects organic growth to be "an increasingly key role in driving Kingsway's success going forward," citing operational momentum across subsidiaries.

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Fitzgerald described plans to support platforms for tuck-in acquisitions and organic growth, highlighting the addition of a new Operator-in-Residence to pursue acquisitions in the testing, inspection, and certification sector.

FINANCIAL RESULTS

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KSX segment revenue was $19 million in Q3, up from $9.3 million in the same quarter a year ago. Adjusted EBITDA for KSX was $2.7 million, compared to $1.4 million in the prior-year quarter.

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Extended Warranty segment revenue was $18.2 million, up from $17.8 million in the prior year. Adjusted EBITDA for Extended Warranty was $800,000, down from $2.1 million a year ago.

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Total cash and cash equivalents were $9.3 million as of September 30, 2025. Total debt stood at $70.7 million, with net debt at $61.4 million, reflecting increased borrowing for recent acquisitions.

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CFO Hansen noted, "The improvement in cash sales in our Extended Warranty segment reinforces our confidence that GAAP earnings will recover over time as deferred revenue from our recent cash sales was recognized."

Q&A

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Mitchell Weiman, Sumner Financial Advisors Inc: "With the current environment with all the uncertainty regarding Medicare and reimbursements and everything, how is that going to affect secure nursing and digital diagnostics?" Fitzgerald responded that SNS is focused on "the types of hospitals where we're placing nurses," and is "acutely aware" of hospital financial health, while DDI has "a little bit less exposure to Medicare and Medicaid."

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Scott Miller, Greenhaven Road Investment Management, LP: "Can you talk a little bit about kind of the type of organic growth you're seeing, what you think is possible, how it might differ across businesses?" Fitzgerald discussed "high single-digit organic growth potential at all of the businesses we acquire" and detailed the progression out of the J-curve for Image Solutions and DDI.

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Miller asked about the ceiling for Image Solutions. Fitzgerald explained the industry is "very large" and "fragmented" and suggested that "there will be a potential there to do additional capital allocation things like inorganic growth and buying tuck-ins."

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James Carbonara, Hayden Ir, LLC: "Can you please discuss how Roundhouse and the plumbing businesses are doing in the first quarter or 2 since acquiring them?" Fitzgerald said, "It's early days, but both of them are doing great, right? I think they're both operating at or above our underwriting plan."

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Carbonara asked about drivers of Extended Warranty cash sales growth. Fitzgerald pointed to multiple business units, highlighting "IWS is doing great. It's a really good business. Six consecutive quarters of growth in cash sales."

SENTIMENT ANALYSIS

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Analysts raised concerns about industry headwinds, especially in healthcare reimbursement, and pressed for detail on organic growth and acquisition strategy. Their tone was inquisitive but not overtly negative, as seen in Weiman's and Miller's questions.

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Management maintained a confident and positive tone, emphasizing momentum and resilience. Fitzgerald used phrases like "we are seeing real business momentum" and "the business and financial momentum is tangible."

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Compared to the previous quarter, management's confidence remained high, but there was a shift to more detailed discussion of organic growth drivers and platform scalability. Analyst tone was consistent, maintaining a focus on the sustainability of growth and acquisition pacing.

QUARTER-OVER-QUARTER COMPARISON

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The current quarter saw Kingsway exceed its annual acquisition target earlier in the year, compared to the previous quarter's announcement of an increased target. Management provided more visibility into KSX segment performance and organic growth, with a shift in focus from capital-raising to operational execution.

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Financial metrics such as consolidated revenue and KSX growth rates accelerated quarter-over-quarter, while Extended Warranty's adjusted EBITDA declined but cash sales growth improved.

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Analyst questions shifted from acquisition pacing and OIR pipeline in Q2 to more granular questions about business segment exposure, organic growth, and post-acquisition performance in Q3.

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Management's tone evolved from optimism about scaling to reporting tangible results and operational momentum, increasing the transparency around segment performance and acquisition integration.

RISKS AND CONCERNS

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Management acknowledged industry risks, particularly in healthcare reimbursement affecting nurse staffing and digital diagnostics subsidiaries. Fitzgerald stated, "I think hospitals are under quite a bit of pressure," and described monitoring client financial health and payer exposure.

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Timing differences in GAAP accounting for the Extended Warranty business were noted as affecting reported EBITDA, with management emphasizing the use of modified cash EBITDA to assess performance. Hansen explained, "Over time, these timing differences even out and adjusted EBITDA and modified cash EBITDA converged."

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Analyst concerns focused on exposure to healthcare market volatility and the sustainability of organic growth post-acquisition.

FINAL TAKEAWAY

Kingsway's third quarter marked a period of accelerated M&A activity, strong top-line growth, and the emergence of its KSX segment as a core driver of results. Management highlighted tangible momentum across its portfolio, with organic growth in several subsidiaries and a robust acquisition pipeline. The company remains committed to disciplined growth, maintaining a confident outlook while acknowledging sector-specific risks. With a scalable model, Kingsway is positioned to leverage its Search Fund framework for continued expansion and shareholder value creation into the next year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/kfs/earnings/transcripts]

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