Kingsway (KWY) Q2 FY26 earnings call: guidance and Q&A

Can you share more information about the RCC acquisition, how it was found, and why it makes sense for Image Solutions?

RCC is a high-quality business with over 80% recurring revenue, strong margins, and double-digit organic growth, acquired at an attractive multiple from a retiring founder. It expands Image Solutions' geographic footprint and aligns with its inorganic growth strategy, which was part of the original investment thesis. The deal was sourced through a broker, and Image Solutions differentiated itself through complementary fit and understanding the seller's aspirations.

“RCC is a really nice little business, greater than 80% recurring revenue, strong margins and a history of really nice organic growth, sort of outpacing the industry. If you combine that with a motivated seller for retirement reasons and an attractive multiple, I think the deal stands alone on its merits.”

asked by James Carbonara · answered by John Fitzgerald

Are there many active ARGO search investments remaining, and do you expect additional cash distributions in the future?

There are a handful, probably three significant active ARGO search investments remaining. The $1.1 million received this quarter was a dividend, and Kingsway still holds equity in these companies. Management expects additional distributions in the future, either as dividends or from monetization events.

“So there are several -- a handful, probably active ARGO search investments that remain, probably 3 of significance. I think it's important to point out that the cash we received in the quarter was a distribution, a dividend from 2 of those companies. And so we still own our equity interest in those businesses, and they continue to operate. And so yes, I definitely expect that we should receive additional distributions from those companies in the future, either in the form of another dividend or ultimately as a result of a monetization event.”

asked by James Carbonara · answered by John Fitzgerald

With Roundhouse, AAA, and Southside past their one-year marks, should investors consider the $22 million to $23 million portfolio EBITDA as a floor to grow from?

Management clarified that Roundhouse is past one year, with AAA and Southside slightly behind. They confirmed that the $22 million to $23 million LTM portfolio EBITDA, representing the last 12 months of operating performance for businesses largely owned for that period, is a fair anchor for investors to consider as a base for future growth.

“Yes, I think that, that's a fair way to say it, that $22 million to $23 million is the last 12 months of operating performance of the businesses that we have largely owned for now 12 months. And so I would think that, that is a good thing for investors to anchor to, which is that should start showing up in the full year results on a trailing basis.”

asked by James Carbonara · answered by John Fitzgerald

Given RCC was funded at the operating company level without new capital from Kingsway, where does portfolio leverage sit today, and how much tuck-in capacity does that provide?

Consolidated leverage is around $2.7 million (likely referring to a ratio, but stated as a dollar amount, ASR error suspected). Management believes there is plenty of room for continued tuck-in acquisitions, citing successful past examples like RCC, Ledgers, and HR team acquisitions funded at the operating company level.

“I think we track our leverage. I think right now, we're around [ $2.7 million ], consolidated, maybe a little bit lower on that. And I think we do have plenty of room there to continue going for the reasons that JT had mentioned earlier.”

asked by James Carbonara · answered by Kent Hansen

With increased competition in the search fund space, are acquisition multiples rising, and how does Kingsway's platform position its OIRs compared to traditional searchers?

While there's increased interest in search, Kingsway rarely encounters traditional searchers in deal processes and has not seen acquisition multiples creep up. Kingsway's platform offers advantages like an active sourcing engine, full tech stack, and industry game board, improving the probability of success for its Operators-in-Residence (OIRs) compared to traditional searchers, leading to a more active OIR pipeline.

“A couple of hundred active searches, we rarely bump into those searchers in deal processes. So we haven't, and I think demonstrated by the multiples that we're doing deals at even announced today, we're not seeing that creep into the multiples.”

asked by James Carbonara · answered by John Fitzgerald