Kingsway(US:KFS)2020-07-17 20:01Financial Performance - In Q1 2020, Kingsway reported a net loss of $0.4 million compared to a net income of $3.2 million in Q1 2019, primarily due to unallocated interest expenses and other non-segment expenses [243]. - Total segment operating income increased by 42% to $1.447 million in Q1 2020 from $1.019 million in Q1 2019, driven by growth in both Extended Warranty and Leased Real Estate segments [242]. - Extended Warranty service fee and commission income rose by 14.3% to $11.2 million in Q1 2020, up from $9.8 million in Q1 2019, largely due to the inclusion of Geminus for the entire quarter [244]. - Leased Real Estate rental income remained stable at $3.3 million for both Q1 2020 and Q1 2019, with operating income increasing to $0.6 million from $0.5 million due to lower litigation expenses [248]. - Net investment income for Q1 2020 was $0.719 million, slightly up from $0.699 million in Q1 2019 [242]. - The loss on change in fair value of equity investments was $0.6 million in Q1 2020, compared to a gain of $0.1 million in Q1 2019, reflecting significant unrealized losses [250]. - The Extended Warranty operating income increased to $0.9 million in Q1 2020 from $0.6 million in Q1 2019, attributed to improved performance across subsidiaries [244]. - Net realized gains were $0.2 million in Q1 2020, down from $0.3 million in Q1 2019, primarily related to sales of fixed maturities [249]. Interest and Expenses - Interest expense not allocated to segments was $2.153 million in Q1 2020, slightly higher than $2.102 million in Q1 2019 [242]. - Other income and expenses not allocated to segments resulted in a net expense of $3.0 million in Q1 2020, up from $1.8 million in Q1 2019 [255]. - Amortization of intangible assets rose to $0.6 million in Q1 2020 from $0.5 million in Q1 2019, reflecting the full quarter inclusion of Geminus [256]. - Interest expense not allocated to segments increased to $2.2 million in Q1 2020 from $2.1 million in Q1 2019 [254]. COVID-19 Impact - The company continues to monitor the impact of COVID-19 on its operations, particularly in the Extended Warranty segment, which has seen reduced sales due to decreased consumer spending [235]. - The impact of COVID-19 on investments may lead to future material decreases in underlying investment values, requiring potential write-downs [272]. Cash Flow and Financing - During the three months ended March 31, 2020, the Company reported $0.6 million of net cash provided by operating activities, with a net loss of $0.4 million [302]. - The net cash provided by investing activities during the same period was $7.3 million, primarily from proceeds of sales and maturities of fixed maturities [303]. - The net cash used in financing activities was $1.7 million, mainly due to principal repayments on bank loans and notes payable [304]. - The Company's net increase in cash and cash equivalents during the three months ended March 31, 2020, was $6.3 million [305]. - The Company received loan proceeds under the Paycheck Protection Program totaling $2.9 million with a stated annual interest rate of 1.00% [299]. - The Company intends to use the entire $2.9 million loan amount from the Paycheck Protection Program for qualifying expenses, although there is no guarantee of loan forgiveness [299]. Debt and Liquidity - The carrying value of the subordinated debt at March 31, 2020, was $40.4 million, with a $14.3 million decrease in fair value from December 31, 2019, to March 31, 2020 [292][294]. - The Company has deferred interest payments totaling $10.5 million on its subordinated debt as of March 31, 2020, which prohibits the redemption of any capital stock during the deferral period [317]. - As of March 31, 2020, the holding company's liquidity was $4.0 million, representing approximately nine months of recurring operating expenses [314][315]. - The total cash and cash equivalents reported at March 31, 2020, were $14.0 million, compared to $13.5 million at December 31, 2019 [314]. Regulatory Compliance - The Company received notification from the NYSE regarding noncompliance with listing standards due to an average market capitalization below $50.0 million [323]. - The Company submitted a business plan to the NYSE on June 1, 2020, to demonstrate compliance with listing standards within 18 months [324]. Investment Ratings - As of March 31, 2020, 90.9% of fixed maturities had contractual maturities of five years or less, with a total fair value of $15.247 million [330]. - As of March 31, 2020, 94.0% of fixed maturities are rated 'A' or better, a decrease from 99.1% on December 31, 2019 [336]. - The percentage of fixed maturities rated AAA/Aaa dropped significantly from 73.7% in December 2019 to 54.1% in March 2020 [337]. - The proportion of fixed maturities rated AA/Aa decreased from 22.9% to 12.1% during the same period [337]. - The percentage of fixed maturities rated A/A increased from 2.5% to 27.8% [337]. - The total percentage of fixed maturities rated BBB/Baa rose from 0.9% to 6.0% [337]. Interest Rate Risk - A 100 basis point increase in LIBOR would result in an approximately $1.0 million increase in annual interest expense [332]. - The Company manages equity price risk through diversification and continuous evaluation of market conditions [333].