Adam Patinkin: Got it. That makes a lot of sense. And then maybe this is a question I’m just going to ask 1 last question, which is maybe you haven’t gotten there on this, but I just wanted to ask you. So as you acquire more businesses through the Kingsway Search Xclerator, your business is kind of mix shifting away from warranty, which is a wonderful business. But maybe a little lower growth business and towards some of these higher growth businesses and you think about something like the last 2 acquisitions that you’ve made here as being really growthier businesses. And that’s going to be more and more of the Kingsway portfolio over time, which I think should be positive when you think about the business quality and positive about the earnings growth ahead of the company, just the mix in a way is a little bit growthier.
How do you guys think about disclosures over time? In terms of disclosing where each of the businesses are in terms of their EBITDA or whether you prefer to kind of lump them all together or maybe get snapshots every now and then? I don’t know if you guys have had settled on an approach there, but hopefully, there will be a lot more acquisitions to come. And I’m just trying to understand how you are thinking about sharing that information with the market. And I’ll step off. That’s my last question.
JT Fitzgerald: Yes, it’s a great question, Adam. And right now we have a reportable segment that means certain things to under GAAP and things about how we manage those businesses. We think of them within KSX is all fitting a very similar profile and we’re focused on the same types of things. And so, that becomes its own reportable segment. And then like today, we sort of unpacked within that segment the performance of each one of the individual businesses. And I would expect that we would continue to do that. Certainly also as we update our investor deck for Q3, break out that performance. And that would be something that we intend to do quarterly going forward. So people can see under the hood how each one of these businesses are doing within that Search Xclerator segment.
And the same is true at warranty, maybe a different growth profile. We really like those businesses, combination of diversified contractual prepaid revenue and the investable float. Just maybe a slightly more mature market. So, I don’t know if that fully answered your question, Adam, but we would certainly — I don’t think we’ll have separate reportable segments within KSX, but we’ll break them out and talk about the underlying performance of each one of our businesses every quarter and in the investor deck.
Kent Hansen: Yes, this is Kent. So I’ll just add, the U.S. GAAP rules sort of are complicated when it comes to determining your reportable segments. And it’s hard to determine if we’d be required in our filings to sort of break apart KSX that will depend on the profile of future acquisitions and how closely they are sort of related to each other. But internally, right now, we sort of look at KSX as a segment internally and the Board looks at it that way. And — but we’ll continue to try to give as much color as we can without also perhaps disclosing too much information that a competitor might pick up as well.
Operator: And there were no other questions from the lines. Back to you, James.
James Carbonara: Yes, we have three more questions from the e-mails, actually 1 that just came in live. And if you do have a question, you’re listening on the webcast, feel free to shoot it over to james@haydenir.com. Happy to get the question teed up. The most recent question that came in was on CSuite. It says, why was CSuite’s pipeline disrupted during the acquisition process? Yes, that’s all the questions for JT or Kent.
JT Fitzgerald: Yes, great question. So, Arthur, the seller, was the primary business development person at his company. And so, as he got deeply involved in the sale of his business, his pipeline of new business suffered a bit, I would say, just through distraction. And so, Timi has internally promoted someone at the company to transition Arthur out. He is now no longer with the company. He satisfied his 1-year consulting agreement. And Timi is now focused on rebuilding that pipeline and has been most of the year as well. But I would say, that the pipeline of new business activity took a backseat during the sales process because Arthur was selling his business and not focused on business development.
James Carbonara: Got it. And the next one was, how does management feel about levered acquisitions given the current interest rate environment? What spreads are they able to get on acquisition debt currently?
JT Fitzgerald: Yes, I think we talked about the spreads on acquisition debt. Acquisition debt is sort of 50 basis points over prime on our most recent deal. And that’s been pretty consistent in all of our acquisitions. And then levered acquisitions, given the current interest rate environment, I think it’s important to point out that we have and will continue to use what we believe to be a relatively conservative amount of leverage in support of these transactions. So 3x senior funded debt-to-EBITDA or less at closing. And so, obviously, the cost of capital, the debt capital is higher. But interestingly, if you sort of model that out in our acquisition models, then because of the amortization of the debt and things, the impact on our modeled IRRs, if you go from sort of 6% debt cost of capital to 9%, only decreases by 100 basis points or so over 6 years.
So, the higher cost of debt doesn’t really have a big impact on the modeled returns. But as I’ve said before, we want to use a modest amount of debt to enhance those equity returns, but we’re probably more focused on striking the appropriate balance on returns to our invested capital with adequate covenant headroom, right? And so, we want to give these operators plenty of cushion out of the gate. So we don’t take on a ton of debt so that we’re not in senior funded debt-to-EBITDA [PICLs] or fixed charge coverage ratio challenges. And so, the current rate environment at our level of leverage hasn’t really impacted things.
James Carbonara: Great. And the last question we have here is, does management have a lower bound for interest coverage, i.e., would they pull back on the acquisition pipeline if interest coverage fell below 1x or a different threshold? You may have just answered that, but just sharing that last one that came in.
