Good day, and welcome to the Kingsway Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. With me on the call are J.T. Fitzgerald, Chief Executive Officer; and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everybody that today's conference may contain forward-looking statements. Forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses and future business outlook. Actual results or trends could materially differ from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission. Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release as well as in our periodic filings with the SEC. Now I would like to turn the call over to J.T. Fitzgerald, CEO of Kingsway. J.T., please proceed.

Thanks, Paul. Good afternoon, everyone, and welcome to the Kingsway earnings call for the second quarter of 2024. We had a solid quarter that was largely in line with our expectations. We saw improving performance in our Extended Warranty segment, which showed strong cash sales and moderating claims experience and we exited the quarter with nice momentum heading into the back half of the year. Our KSX segment also performed well with EBITDA improving sequentially and year-over-year. Additionally, this quarter has been marked by very positive deal-related activity. We have a couple of promising high-quality prospects that we are working on, which, if completed, would significantly contribute to our growth trajectory moving forward. For the second quarter of 2024, consolidated revenue was $26.4 million, a modest increase of 1% compared to the prior year quarter, while consolidated adjusted EBITDA was $2.4 million, a nice improvement over the $1.8 million in the year ago quarter. For the Extended Warranty segment and the KSX segment, combined adjusted EBITDA was $3.4 million in both the second quarter of this year and last year. In our Extended Warranty segment, the pricing adjustments that were implemented beginning in the second half of 2023 are having a positive impact in helping to offset claims expense, which increased only 2.9% over the prior year. You may recall that Q1 claims were 13.1% higher than last year. Also notably, our cash sales for the current quarter increased 4.6% over the prior year. Sequentially, adjusted EBITDA increased 12% from the first quarter of 2024, driven by higher earned revenue, a higher mix of Extended Warranty revenue at Trinity and our ongoing focus on controlling costs. As we talked about during our last earnings call, the challenges faced by the businesses in Extended Warranty have moderated, and we feel that…

Thanks, J.T. As a reminder, during the fourth quarter of 2022, we began executing a plan to sell one of our subsidiaries, VA Lafayette, which owns a medical clinic whose sole tenant is the U.S. Veterans Administration. As such, VA Lafayette is included in discontinued operations and its assets and liabilities are reported as held for sale. The results of operations are reported separately and not included in the results reported today. Taking a look at our balance sheet and cash flows. At the end of the second quarter of 2024, we had cash and cash equivalents of $9.6 million compared to $9.1 million at the end of 2023. Cash provided by operating activities from continuing operations was $500,000 for the first 6 months of 2024 compared to cash used in operating activities of $24.7 million in the year ago period. Cash used in the prior year was primarily due to outflows related to the payment of fees, expenses and interest related to asset sales and debt repurchases, which was partially offset by operating income for the businesses in our operating segments. In May of this year, we amended our Extended Warranty loan to pay off all current Extended Warranty debt and replaced it with a $1 million revolver, a term loan of $15 million and a delayed draw loan of $6 million. The maturity date was extended to May of 2029. This amendment now gives us additional capacity to fund future acquisitions. As of June 30, 2024, we had total outstanding debt, which is comprised of bank loans and subordinated debt of $47.3 million compared to $44.4 million at the end of 2023. Net debt increased to $37.7 million as of June 30, 2024, compared to $35.3 million at the end of '23, primarily due to the Extended Warranty amendment. In March of this year, our securities repurchase program was extended for 1 year through March of 2025. Year-to-date, we have repurchased 141,550 shares of common stock for an aggregate purchase price of approximately $1.1 million. Also of note, in July 2024, we completed the purchase of the minority 10% interest in IWS that we did not previously own. And as such, IWS is now a wholly owned subsidiary of the company. I'll now turn the call back over to Paul to open the line for any questions. Paul?

[Operator Instructions] The first question today is coming from Adam Patinkin from David Capital.

I just wanted to ask quickly about the warranty business, if you don't mind. So I think that you gave a little bit of color that the cost inflation there has moderated pretty significantly. And I think, **J.T. that you said it was up 2.9% year-over-year. Can you kind of provide a little bit more color there in terms of where your rates are trending relative to cost inflation? And how you expect both of those to trend going forward over the duration of the year?

Yes. Adam, thanks for the question. Yes. So warranty claims were up 2.9% or so in the quarter, mostly driven by severity, not frequency. As you know, we started taking rate back half of last year and into this year. And I think in the aggregate across the businesses, the sort of price increases were in the kind of high single digits, how much of that sticks and how much of that comes through in shifting mix and stuff is always a little bit hard, but we're -- to determine, but we're seeing probably about 4% or 5% of that come through in rate. And so also, as you know, beginning in late second quarter and really in the third quarter of last year, we saw accelerating claims inflation, severity inflation, predominantly parts and labor. And so we're coming up against much easier comps in the second half of the year for claims dollars. And so I would expect that year-over-year inflation will be much lower and that rate that I mentioned will still continue to come through.

[Operator Instructions] And there were no other questions from the lines. I'd now like to pass the call to James for some e-mail questions.

Thank you, Operator. Yes, we did have 2 questions come in on e-mail. The first one is, it says; J.T., You said at the Investor Day, you were very happy with the 2 most recent acquisitions, although there are recent reported numbers that both these businesses doesn't yet demonstrate their superior attributes and performance. Can you talk about why you still like these businesses and how long before the performance starts to show up in the financials?

Yes. I mentioned it a little bit in the prepared remarks. SPI, which we acquired in September of last year, vertical market software business serving the fractional ownership vacation property industry has grown ARR since acquisition by roughly 12%. They've also added several new clients that they're in the process of onboarding. And so I would expect by the end of the year that we will have grown ARR by roughly 20% since inception. So I think that's really strong growth. Drew has done a great job transitioning in there and is focused on investing in growing the number of new customers on their software platform. And so I think a little bit of that would be sacrificing a little bit of near-term profitability for growth in recurring revenue, very high margin recurring revenue to go out and capture more market share in his addressable market. And then DDI, as I mentioned, revenue in the quarter increased roughly 15% over the prior year prior to our ownership and EBITDA improved even more dramatically. And so those -- that financial performance is starting to come through in the financial statements. And it's just a really incredible opportunity here. Peter is doing a great job really growing with the customers that he currently has who are sending him more facilities to onboard. And as I mentioned, in support of that growth and to create redundancy operationally and also tap a new labor pool for high-quality EKG techs; we're opening a new facility in Salt Lake. So yes, I think we're really excited about the trajectory of both of those businesses.

Excellent. And the last question, again, something you may have touched on in opening remarks, but maybe something to reinforce and reiterate. The question is, are you seeing any signs of a turnaround in either CSuite or the nursing business, what facts might lead you to believe that better days are ahead for these 2 businesses?

Yes. SNS, we'll start there, the nurse staffing business. For the first time, we exited the quarter with more travelers on assignment than we had at the same point in time last year. So that's a great fact. And our TOA ships in the quarter increased 35% over the first quarter of the year. And so Charles is doing a great job of recruiting nurses onto the platform and getting more TOA shifts. And so that's been really nice progress there. I think broadly, the industry is seeing gross margin compression start to abate and it feels like we're kind of settling into a steady state. And always in the second half of the year, seasonally, there's more demand for travel and per diem nurses as hospital census increases during cold and flu season. So I think we're in a good position to capture that growing demand in the back half of the year. CSuite, it's -- I mentioned that the challenges are a bit persistent. A lot of their business is recruiting for permanent placement of accounting staff at private equity portfolio companies. I think with some challenges around business optimism, people have been slow to hire. We've got a huge backlog of retained searches and as well as interim CFO work. It's getting people to pull the trigger and close those deals. I think Timi has been really trying to push those along and we're hopeful that the sentiment improves in the second half of the year. Still hard to tell. But he's been -- the backlog or pipeline of deals that he has is as strong as we've seen it.

Great. And Operator, that's all from the questions on e-mail.

There were no other questions from the lines at this time. So would you like to conclude the call now?

Yes. Thanks, everyone. Have a great evening. Appreciate you participating on the call.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.