JT Fitzgerald: But operator, before you take the next question, I just wanted to point out to people on the call that we do get a lot of questions about run rate, and we published an investor deck in January of this year. And in the appendix, we did add a slide giving a little bit more color on that. So, I encourage people to take a look at that and hopefully it will help digest what we’re trying to communicate with that.
Operator: [Operator Instructions] It looks like we have no further questions in queue from the lines. I’d like to turn it back to James Carbonara for any questions he may have via email.
James Carbonara : Thank you, Operator. Hi, JT and Kent. We had a few come in on email. Many were already answered. I’ll start with this one that, I know you touched on in the prepared remarks but we’ll go ahead and ask anyway. It says, now that we are in March, are you still hoping to close two to three new acquisitions by the end of 2023?
JT Fitzgerald: Yeah, that’s certainly the goal, right? — out pounding the pavement every day. And we have a set of sort of what I would call leading measures that we think are both predictive, and influenceable by our guys, and predictive of the lag metric, which is getting these acquisitions done. And so, the activity is great we’re been engaged in a lot of conversations with business owners, and so standing here today that’s still certainly our hope. Again, these things, there is some serendipity to them, and so it’s hard to make a hard target, but based on the level of activity we’re seeing, that’s definitely our hope.
James Carbonara: You did touch on this before with Adam, but it talks about the warranty business and how do you see it performing in 2024? If you just wanted to reiterate your, your outlook.
JT Fitzgerald: Look, 2023 was a tough year in the warranty businesses from a revenue standpoint and on the claim severity claim severity seems to have receded a bit. Certainly in terms of the inflation kind of year over year inflation, we’re starting to see that moderate. And all of those businesses have done a really nice job in spite of some of the revenue headwinds, adding new distribution partners, new distribution channels increasing the activity with existing customers getting higher conversion and attachment rates. And so we feel pretty sanguine about how they’re going to do this year without giving guidance obviously, but fairly optimistic.
James Carbonara: Another question was, if you buy businesses for five to seven times EBITDA, why should Kingsway trade at a higher multiple than those acquisition multiples?
JT Fitzgerald: That’s one we get from time to time. First, I would say, I’m not going to say why something should or shouldn’t. Probably not. My role to say what someone should or shouldn’t do, but I can give you my perspective. And so I think first kind of unpack it from like why are these businesses available to these high-quality businesses available to acquire for 5x to 7x EBITDA. I would say, first, every one of these small companies probably has some amount of what I would call hair on them. Cash basis financials filed in QuickBooks, etcetera. In essentially every case you’ve got a founder, operator, leader who’s looking to retire. And for that reason and these processes take a very long time and we are sourcing them more often than not proprietarily.
And that’s just really hard to do. And so as a result, there’s a relatively small universe of buyers out there relative to the number of companies in that size range that because of the demographics we’ve discussed in the past are coming available for sale. And on the flip side, why should why I think that they should trade at higher multiple? If you think about what happens to those businesses when they come into Kingsway and onto the KSX platform. First, they get cleaned up, right? We put them through what we call the Kingsway Car Wash, right? So consistent, accrual-based, audited financials, internal control environments, risk mitigation, et cetera. And then we install really great leadership to unlock that latent growth that often is there, certainly what we’re targeting.
We shield those cash flows from taxes because of our NOL, our tax attributes. Each one of these small companies also has some risk, often there’s customer concentration or something like that. I would say that, a portfolio of those businesses is probably less risky than buying one individually and it would be hard to reconstruct that portfolio. And then I think my final thought would be that, the highest multiples for companies get afforded to those that can reinvest their free cash flow at very high rates of return for a long time. I think that we are building that with the KSX platform. This demographic silver tsunami of opportunities to buy great businesses, combined with our pipeline of talent and the cash flow to redeploy, I think creates a really nice flywheel that will give us a very long and wide runway.
James Carbonara: Great. And then the last one, just on the software business. It’s a two parter. It says, do you think you will be able to organically grow the software business? And do you have any concrete examples you are able to offer regarding growth?
