Kingsway Announces Fourth Quarter and Year-End 2015 Results

PR Newswire

TORONTO, Feb. 4, 2016

TORONTO, Feb. 4, 2016 /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, 2015. All amounts are in U.S. dollars unless indicated otherwise.

Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, "2015 was an excellent year for the Company, as we returned to profitability and improved the balance sheet considerably through the sale of ARS in April, the buy-out of the Management Services Agreement from 1347 Property Insurance Holdings, Inc. (while maintaining a position in the company), repaying our KLROC debt, and becoming current on the outstanding Trust Preferred indentures. This has Kingsway positioned to both pursue new growth opportunities while also allowing our Company to initiate a share buy-back plan. We reported considerably higher net investment income and have grown book value per share by 5%. We are now in the strongest financial position since our management team joined in 2010. Each of us has a meaningful stake in the Company and believes in Kingsway's long-term potential."

Mr. Swets continued, "In the fourth quarter, our concentration was on effectively managing our existing operations. We are focused on gradual gains while maintaining the float to provide Kingsway the ability to execute on its merchant banking strategy.

"Kingsway is actively pursuing expansion opportunities where we can leverage our expertise and track record to seek long-term value creation through investments, acquisitions and financings. We will leverage our unique position with the Company's deferred tax asset to execute on these opportunities throughout the remainder of the year."

Operating Results
The Company reported net loss attributable to common shareholders of $2.3 million, or $0.12 per diluted share, in the fourth quarter of 2015, compared to a net income attributable to common shareholders of $0.5 million, or $0.03 per diluted share, in the fourth quarter of 2014.

For the year ended December 31, 2015, Kingsway reported net income attributable to common shareholders of $0.8 million, or $0.04 per diluted share, compared to a net loss attributable to common shareholders of $13.1 million, or $0.75 per diluted share, in the prior year period.

Following are highlights of Kingsway's fourth quarter 2015 results. Operating (loss) income reflects the Company's core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses.

Operating loss was $0.9 million for the fourth quarter of 2015 compared to operating income of $3.6 million for the fourth quarter of 2015.
- Insurance Underwriting segment operating loss was $0.8 million for the fourth quarter of 2015 compared to operating income of $1.2 million for the fourth quarter of 2014.
- Insurance Services segment operating loss was $0.2 million for the fourth quarter of 2015 compared to income of $0.2 million for the fourth quarter of 2014.
- Net investment income of $0.3 million was reported in the fourth quarter of 2015 compared to $0.3 million in the fourth quarter of 2014.
- Net realized gains of $1.1 million were reported in the fourth quarter of 2015 compared to net realized losses of $0.4 million in the fourth quarter of 2014.
- Other operating income and expense was a net expense of $1.3 million in the fourth quarter of 2015 compared to a net income of $2.3 million in the fourth quarter of 2014.
Adjusted operating loss was $0.2 million in the fourth quarter of 2015 compared to income of $1.2 million in the fourth quarter of 2014.
Book value increased to $2.22 per share at December 31, 2015 from $2.12 per share at December 31, 2014. The Company also carries a valuation allowance, in the amount of $14.39 per share at December 31, 2015, 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)

		Three months ended December 31,				Years ended December 31,
		2015			2014	2015			2014
Revenues:		(unaudited)				(unaudited)
	Net premiums earned	$	29,006	$	28,500	$	117,433	$	117,593
	Service fee and commission income		5,536		5,619		22,966		24,659
	Net investment income		286		320		2,918		1,616
	Net realized gains (losses)		1,061		(418)		1,197		5,041
	Other-than-temporary impairment loss		—		—		(10)		—
	Other income		2,288		2,386		15,462		9,315
Total revenues			38,177		36,407		159,966		158,224
Operating expenses:
	Loss and loss adjustment expenses		23,758		21,011		92,812		86,227
	Commissions and premium taxes		5,574		5,415		22,773		23,238
	Cost of services sold		915		543		4,044		3,880
	General and administrative expenses		10,012		8,417		41,760		41,613
	Amortization of intangible assets		307		400		1,244		1,620
	Contingent consideration benefit		(1,503)		(3,024)		(1,139)		(2,223)
	Impairment of asset held for sale		—		—		—		1,180
Total operating expenses			39,063		32,762		161,494		155,535
Operating (loss) income			(886)		3,645		(1,528)		2,689
Other (revenues) expenses, net:
	Interest expense		1,225		1,431		5,278		5,645
	Foreign exchange losses, net		5		148		1,215		419
	(Gain) loss on change in fair value of debt		33		754		(1,458)		10,953
	Loss on disposal of subsidiary		—		2		—		1,244
	Loss on disposal of asset held for sale		—		125		—		125
	Loss on deconsolidation of subsidiary		—		—		4,420		—
	Equity in net (income) loss of investee		(60)		107		339		190
Total other expenses, net			1,203		2,567		9,794		18,576
Loss from continuing operations before income tax expense (benefit)			(2,089)		1,078		(11,322)		(15,887)
Income tax expense (benefit)			14		(250)		93		(1,221)
(Loss) income from continuing operations			(2,103)		1,328		(11,415)		(14,666)
(Loss) income from discontinued operations, net of taxes			(9)		23		1,417		3,442
Gain on disposal of discontinued operations, net of taxes			8		—		11,267		—
Net (loss) income			(2,104)		1,351		1,269		(11,224)
	Less: net income attributable to noncontrolling interests in consolidated subsidiaries		88		723		162		1,596
	Less: dividends on preferred stock		83		82		329		300
	Net (loss) income attributable to common shareholders	$	(2,275)	$	546	$	778	$	(13,120)
(Loss) earnings per share - continuing operations:
	Basic:	$	(0.12)	$	0.03	$	(0.60)	$	(0.95)
	Diluted:	$	(0.12)	$	0.03	$	(0.60)	$	(0.95)
Earnings per share - discontinued operations:
	Basic:	$	—	$	—	$	0.64	$	0.20
	Diluted:	$	—	$	—	$	0.64	$	0.20
(Loss) earnings per share – net (loss) income attributable to common shareholders:
	Basic:	$	(0.12)	$	0.03	$	0.04	$	(0.75)
	Diluted:	$	(0.12)	$	0.03	$	0.04	$	(0.75)
Weighted average shares outstanding (in '000s):
	Basic:		19,710		19,710		19,710		17,398
	Diluted:		19,710		19,710		19,710		17,398

Consolidated Balance Sheets
(in thousands, except per share data)

		December 31, 2015		December 31, 2014
		(unaudited)
Assets
Investments:
	Fixed maturities, at fair value (amortized cost of $55,606 and $56,000, respectively)	$	55,559	$	56,195
	Equity investments, at fair value (cost of $26,428 and $16,579, respectively)		27,559		19,618
	Limited liability investments		20,141		7,294
	Other investments, at cost which approximates fair value		4,077		3,576
	Short-term investments, at cost which approximates fair value		400		400
Total investments			107,736		87,083
Cash and cash equivalents			51,701		71,234
Investment in investee			1,772		2,115
Accrued investment income			594		141
Premiums receivable, net of allowance for doubtful accounts of $165 and $1,889, respectively			27,090		28,885
Service fee receivable, net of allowance for doubtful accounts of $276 and $247, respectively			911		964
Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively			3,789		5,145
Reinsurance recoverable			1,422		3,652
Prepaid reinsurance premiums			7		8
Deferred acquisition costs, net			12,143		12,197
Income taxes recoverable			61		74
Property and equipment, net of accumulated depreciation of $12,537 and $15,751, respectively			5,577		5,975
Goodwill			10,078		10,078
Intangible assets, net of accumulated amortization of $6,009 and $4,765, respectively			14,736		15,980
Other assets			3,405		3,638
Asset held for sale			—		54,553
Total Assets		$	241,022	$	301,722
Liabilities and Shareholders' Equity

Liabilities:
Unpaid loss and loss adjustment expenses:
	Property and casualty	$	55,471	$	63,895
	Vehicle service agreements		2,975		2,975
Total unpaid loss and loss adjustment expenses			58,446		66,870
Unearned premiums			35,234		36,432
Reinsurance payable			145		525
LROC preferred units, at fair value			—		13,618
Subordinated debt, at fair value			39,898		40,659
Deferred income tax liability			2,924		2,837
Deferred service fees			34,319		35,096
Accrued expenses and other liabilities			19,959		35,836
Liabilities held for sale			—		21,653
Total Liabilities			190,925		253,526

Class A preferred stock, no par value; unlimited number authorized; 262,876 and 262,876 issued and outstanding at December 31, 2015 and December 31, 2014, respectively			6,394		6,330

Shareholders' Equity:
Common stock, no par value; unlimited number authorized; 19,709,706 and 19,709,706 issued and outstanding at December 31, 2015 and December 31, 2014, respectively			—		—
Additional paid-in capital			341,646		340,844
Accumulated deficit			(308,995)		(312,050)
Accumulated other comprehensive income			9,300		8,670
Shareholders' equity attributable to common shareholders			41,951		37,464
Noncontrolling interests in consolidated subsidiaries			1,752		4,402
Total Shareholders' Equity			43,703		41,866
Total Liabilities and Shareholders' Equity		$	241,022	$	301,722

Non-U.S. GAAP Financial Measures

Segment Operating (Loss) Income

Segment operating (loss) income 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 (Loss) Income

Adjusted operating (loss) 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 (loss) income is comprised of segment operating (loss) income as well as net investment income, net realized gains, other-than-temporary impairment loss, equity in net income (loss) of investee and net revenues of 1347 Advisors. A reconciliation of segment operating (loss) income and adjusted operating (loss) income to net (loss) income for the quarters and years ended December 31, 2015 and 2014 is presented below:


(in thousands)	Three months ended December 31,				Years ended December 31,
		2015		2014		2015		2014
Segment operating (loss) income	$	(928)	$	1,385	$	(1,775)	$	1,496
Net investment income		286		320		2,918		1,616
Net realized gains (losses)		1,061		(418)		1,197		5,041
Other-than-temporary impairment loss		—		—		(10)		—
Equity in net income (loss) from investee		60		(107)		(339)		(190)
Revenues of 1347 Advisors, net of related outside professional and advisory expenses		(639)		54		5,167		78
Adjusted operating (loss) income		(160)		1,234		7,158		8,041
Corporate operating expenses and other (1)		(1,862)		(320)		(8,920)		(7,302)
Amortization of intangible assets		(307)		(400)		(1,244)		(1,620)
Contingent consideration benefit		1,503		3,024		1,139		2,223
Impairment of asset held for sale		—		—		—		(1,180)
Interest expense		(1,225)		(1,431)		(5,278)		(5,645)
Foreign exchange losses, net		(5)		(148)		(1,215)		(419)
(Loss) gain on change in fair value of debt		(33)		(754)		1,458		(10,953)
Loss on disposal of subsidiary		—		(2)		—		(1,244)
Loss on disposal of asset held for sale		—		(125)		—		(125)
Loss on deconsolidation of subsidiary		—		—		(4,420)		—
Income from disposed subsidiary		—		—		—		2,337
(Loss) income from continuing operations before income tax (expense) benefit		(2,089)		1,078		(11,322)		(15,887)
Income tax (expense) benefit		(14)		250		(93)		1,221
(Loss) income from continuing operations		(2,103)		1,328		(11,415)		(14,666)
(Loss) income from discontinued operations, net of taxes		(9)		23		1,417		3,442
Gain on disposal of discontinued operations, net of taxes		8		—		11,267		—
Net (loss) income	$	(2,104)	$	1,351	$	1,269	$	(11,224)

(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.

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 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/kfs2014.

SOURCE Kingsway Financial Services Inc.

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Kingsway Announces Fourth Quarter and Year-End 2015 Results

Kingsway Announces Fourth Quarter and Year-End 2015 Results