Mount Logan Capital Inc. Common Stock Q3 FY2025 earnings call

Management Statement and Operational Highlights

• The company redomiciled from Canada to the U.S., translated financials from IFRS to GAAP, and trades on the NASDAQ Capital Market under ticker MLCI.
• Completed the merger with 180 Degree Capital.
• On asset management: The merger of Portman Ridge and Logan Ridge created BCP Investment Corporation, with Mount Logan receiving increased distributions from Sierra Crest. SOFIX has waived $415,000 of incentive fees as it scales. Ability provided $1.6 million in fees for the quarter.
• On capital allocation: Plans to be opportunistic with capital, including a tender for up to $15 million in shares at around $9.43 per share, a robust pipeline of M&A opportunities, and a dividend of $0.03 per share approved.

Segment Performance

• Asset Management: For the third quarter, fee-related earnings were $2.5 million. Year-to-date, fee-related earnings were $7 million. Management fees were $1.9 million (down from $2.8 million last year). Incentive fees were $0.4 million (down year-over-year). Equity investment earnings rose to $0.5 million.
• Insurance Solutions: Spread-related earnings were $1.1 million for the quarter. Net investment income was $17 million (down 12% year-over-year). Total assets within the Insurance Solutions segment grew to $1.55 billion. The net investment spread was 12 basis points this quarter, or 48 basis points annualized.

Guidance

• Expect positive growth in FRE from BCP Investment Corporation's management fees and incentive fees, SOFIX's scaling, and Ability's growth.
• Aim to build the annualized net investment spread towards the 75 to 100 basis point range.
• Anticipate organic and inorganic growth in 2026, with a robust pipeline of strategic and accretive M&A deals.

Risks

• Potential impact of private credit market volatility, including macro themes and idiosyncratic events like fraud or misappropriation of funds.
• Uncontrollable factors related to cost of funds affecting the net investment spread in the Insurance Solutions segment.

Question and Answer

Q: Talk about the trajectory for SRE and FRE.

A: Nikita Klassen noted FRE growth from BCP Investment Corporation's management fees and incentive fees, SOFIX's scaling, and Ability's growth. On SRE, focus is on controlling cost of funds and finding investment opportunities to move towards a 75 to 100 basis point annualized margin.

Q: Thoughts on M&A opportunities.

A: Edward Goldthorpe mentioned a robust pipeline of strategic and accretive M&A deals, with 3 or 4 key opportunities in the pipeline expected to be announced by the first quarter.

Q: US market transition and private credit impact.

A: Edward Goldthorpe discussed engaging with the Street due to the NASDAQ listing and noted Mount Logan's focus on corporate credit with no significant deterioration in corporate credit seen yet, as recent private credit issues were tied to asset-based finance not leveraged by Mount Logan.

Q: Return on equity.

A: Edward Goldthorpe noted scale and growth of the insurance company as tailwinds for return on equity, with expectations of robust ROEs going forward