Kingsway Corporation (KWY) Earnings

Management highlights

- Overall Portfolio Performance * This quarter delivered the strongest operating performance since CEO JT Fitzgerald took office, exceeding internal expectations. Management noted the company is not yet firing on all cylinders, with significant remaining room for growth and profitability improvement across the portfolio. * Roundhouse delivered flat quarter-over-quarter adjusted EBITDA primarily due to timing issues, including a $100,000+ revenue shipment deferred from Q2 to Q3; the business continues to win new customers and management remains confident in its long-term trajectory. * Kingsway Skilled Trades delivered flat quarter-over-quarter adjusted EBITDA, driven by a legacy construction project at Southside that resulted in a low 6-figure write-down; Bud's Plumbing had a strong quarter and AAA showed solid improvement. The legacy project is expected to close in the coming weeks, creating a financial tailwind for the segment in Q3 and beyond. * DDI, a 2026 transition business, invested heavily in operational expansion (including a second control center) and sales buildout, resulting in a record customer pipeline; near-term sales expenses are recognized immediately while revenue from new customers will come in over time, and management expects growth to accelerate in coming quarters. * SNS, the nurse staffing business, continued to face post-COVID industry headwinds. Long-time CEO Charles Mokuolu stepped down by mutual agreement in late May, and Operator-in-Residence Paul Vidal took over leadership with updated operating discipline; the industry appears to be stabilizing, and management is cautiously optimistic SNS is turning a corner. - Strategic and Operational Updates * Completed the sale of Trinity Warranty Solutions for $8 million (9.2x 2025 adjusted EBITDA) in a management buyout, with $5 million upfront and $3 million deferred; the freed capital will be redeployed into the KSX segment. * Appointed Colter Hanson as President of Kingsway Skilled Trades, who has already begun driving operational excellence. * Hosted a well-attended Annual Investor Day at the New York Stock Exchange in May, with presentations from portfolio operator CEOs. * Completed a corporate rebranding, officially changing the company name to Kingsway Corporation and stock ticker to KWY after receiving 99.7% shareholder approval. * Added Fletcher Vynne as a new Operator-in-Residence, with experience in the U.S. Navy, Boston Consulting Group, and search-backed cybersecurity services; he will search for an asset-light, tech-enabled recurring revenue services acquisition. * Closed the acquisition of Romeo Computer Company (RCC), a Michigan-based managed IT and cybersecurity provider, through portfolio subsidiary Image Solutions, effective August 1. RCC generated $2.5 million pro forma revenue and $0.5 million pro forma adjusted EBITDA in the 12 months ending April 2026, with a purchase price of $2.4 million; the acquisition expands Image Solutions' geographic footprint in the Upper Midwest. - Balance Sheet and Accounting Highlights * Total net debt decreased to $59.9 million as of June 30, 2026, from $62.4 million at the end of 2025. * The Trinity sale generated a one-time $1.3 million gain on disposal. * Kingsway received $1.1 million in cash distributions from active ARGO search fund investments, which are included in Holdco level consolidated adjusted EBITDA. * Q2 2026 included $1.4 million in noncash stock-based compensation expense, which management expects to return to lower historical levels in future quarters. * Resolved a legacy legal liability related to a 2022 rail yard sale, recording a one-time $600,000 operating expense. - Long-Term Strategic Vision * Management frames Kingsway as a potential public market "compounder", building a scalable model via the Search Fund framework within a tax-efficient public company structure. The company acquires asset-light, recurring revenue services businesses from retiring owners, and reinvests free cash flow into new acquisitions, targeting sustained per-share intrinsic value growth.

Guidance

- Management reaffirms its full-year 2026 target of 3 to 5 acquisitions. - Management reaffirms its target of double-digit organic growth for both the KSX and Extended Warranty segments. - LTM portfolio EBITDA is currently anchored at $22 million to $23 million as a baseline for future growth, with easier year-over-year comparisons expected in the second half of 2026, leading management to expect positive trajectory for this metric in H2 2026.

Segment performance

Kingsway reported consolidated Q2 2026 revenue of $39.4 million, a 27.6% increase from $30.9 million in Q2 2025. Consolidated adjusted EBITDA was $5.2 million, up from $1.7 million year-over-year, and consolidated net income was $200,000, compared to a $3.2 million net loss in the prior year quarter. 1. Kingsway Search Xcelerator (KSX): Revenue increased 68.3% year-over-year to $22.3 million, contributing 56.6% of total consolidated revenue. Adjusted EBITDA grew 77.9% year-over-year to a quarterly record of $4.3 million. 2. Extended Warranty: Revenue decreased 3.1% year-over-year to $17.1 million, contributing 43.4% of total consolidated revenue. Adjusted EBITDA was $1.1 million, up from $600,000 year-over-year. After adjusting for the sale of Trinity Warranty Solutions, pro forma revenue increased 6.5% to $16.1 million and pro forma adjusted EBITDA was $1 million, up from $300,000 year-over-year. Lender-defined modified cash adjusted EBITDA (used for covenant calculations) was $2.9 million for the segment in Q2 2026. Combined portfolio EBITDA (KSX adjusted EBITDA plus Extended Warranty modified cash adjusted EBITDA) hit a new quarterly record of $7.2 million. Last twelve months (LTM) portfolio EBITDA as of June 30, 2026 was $22 million to $23 million, stable quarter-over-quarter after accounting for M&A activity.

Risks & headwinds

- Three operating subsidiaries representing less than 10% of LTM portfolio EBITDA were out of financial covenant compliance during the quarter. All three are in transition, and the company has obtained or is in the process of obtaining waivers for the violations. The loans are non-recourse to Kingsway's parent company and other subsidiaries, and there is no cross-default between the loans, so risks are contained to the individual operating businesses. Management expects operational improvements will return these businesses to compliance over time. - SNS continues to face post-COVID industry headwinds that have pressured performance since acquisition. - DDI's heavy 2026 investment in sales and operations creates near-term margin pressure, with revenue growth expected to materialize only after a lag due to the business's natural sales cycle.

Analyst Q&A

• Q: What is the strategic rationale for the RCC acquisition, and how was it sourced? /

  A: RCC is a high-quality business with over 80% recurring revenue, strong margins, and a history of organic growth outpacing the industry. It was acquired at an attractive multiple from a retiring founder, standing on its own merits. It fits Image Solutions' inorganic growth strategy, which was part of the original investment thesis: after 2 years of stabilizing the business, deploying the Kingsway operating system, and deleveraging, Image Solutions had the capacity to pursue tuck-ins. The deal was sourced through a regular broker channel, with Image Solutions standing out from other bidders due to the complementary strategic fit. (313 words / ~1700 characters)

• Q: How many active ARGO search investments remain, and can we expect more future cash distributions from ARGO? /

  A: There are approximately 3 significant active ARGO search investments remaining. The $1.1 million distribution received in Q2 came from 2 of these businesses, and Kingsway still retains its equity stake in both, so additional future distributions (either via dividends or eventual monetization events) are expected. (118 words / ~650 characters)

• Q: Is the $22 million to $23 million LTM portfolio EBITDA a floor that investors can expect growth from? /

  A: Most of the underlying businesses in this figure have now been owned for a full 12 months, with only a small portion of integration still ongoing for a couple of assets. This range is a reasonable anchor for investors to use as a baseline for future growth, and will be reflected in full-year trailing results going forward. (101 words / ~550 characters)

• Q: With growing competition in the search fund space, are you seeing upward pressure on acquisition multiples, and what advantage does Kingsway's platform give Operators-in-Residence over traditional independent searchers? /

  A: Competition has increased for traditional searchers, with a rising share of independent searchers failing to complete any acquisition. Kingsway offers OIRs an active sourcing engine, fully built operational tech stack, and pre-vetted industry target list, which improves the probability of closing an acquisition; as a result, the pipeline of prospective entrepreneurs interested in joining KSX has grown. Kingsway rarely competes directly with other search funders in deal processes, and the company has not seen any upward creep in acquisition multiples to date. (167 words / ~920 characters)