Mount Logan Capital Inc (MLCI) 2026 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Mt. Logan Capital's second quarter 2026 results conference call.

Before we begin, I would like to remind listeners that today's discussion will include forward-looking statements. These statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance, and business. These statements and other comments are not guarantees of future performance but rather are subject to risk and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a description of the risk associated with Mount Logan's capital business, please see our most recent filings with the SEC. In addition, we will be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to non-GAAP financial measures are in today's earnings release.

This morning's conference call is hosted by Mount Logan's Chairman and Chief Executive Officer, Ted Goldthorpe, President Henry Wang, Chief Financial Officer, Brandon Satoren, Executive Vice President and Chief Operating Officer, Jordan Mangum, and Head of Investor Relations, Scott Chan.

I will now turn the call over to Mr. Goldthorpe. You may begin.

Thank you, and good morning, everyone. Thank you for joining us today.

The second quarter represented another step forward in our effort to build a larger and more durable earnings base around Mount Logan's integrated asset management and insurance platform. Segment income increased to $4.3 million, up from $3.3 million in the first quarter. Fee-related earnings increased sequentially to $1.4 million, while spread-related earnings increased to $2.9 million, up $0.9 million from the first quarter of 2026 and $3 million as compared to the prior year's quarter. These results reflect continued improvement in the profitability of our base of business, a positive indicator as we execute against the strategic initiatives we outlined in the first quarter. Which we expect to convert into increased earnings power during the second half of 2026 and into 2027.

After quarter end, we achieved three significant milestones against our stated strategic initiatives, including the receipt of Ability's B+ financial strength rating and a triple B minus long-term issuer credit rating from AM Best, which was a process spending several quarters as a key catalyst for growth in our insurance segment. Building directly on that rating, this morning Ability announced the launch of its initial suite of multi-year guaranteed annuity products on its flagship ReliAbility brand, marking Ability's entry into direct origination of retirement solutions and an important inflection point for our insurance segment.

Additionally, Yieldstreet shareholders recently approved the proposed merger of more than $100 million of assets into SOFIX from its alternative income fund. The vote was overwhelmingly positive, and we achieved over 50% of the vote in less than four weeks from the release date of the Yieldstreet proxy. We currently expect the Yieldstreet transaction will close during the third quarter. We're also pleased to announce that we are maintaining our quarterly distribution of $0.03 per share, marking the fourth consecutive quarterly dividend following the completion of our business combination, further extending Mount Logan's longstanding dividend record.

Before reviewing our strategic growth initiatives in more detail, I want to review the performance across our core managed portfolios, which provides the foundation for our business. We built our private credit franchise with a goal of being able to invest across all market cycles and environments, and believe performance within the vehicles we manage reflect that. With an insurance solution, the investment portfolio generated a yield of 6.2% during the second quarter, or 6.6%, excluding funds withheld in MOSCO assets. Spread-related earnings increased by $0.9 million sequentially to $2.9 million. The improvement was driven primarily by a favorable guardian reserve assumption update and lower all-in cost of funds.

The Opportunistic Credit Interval Fund, or SOFIX, generated a return of 8% over the trailing 12 months ended June 30, 2026, and 2.5% year-to-date. Topics remains a differentiated interval fund that invests in a broad range of credit assets, such as privately originated loans, asset-based investments, dislocated credit, and other special situations, which gives the fund flexibility to opportunistically deploy capital across all market cycles.

At BCP Investment Corporation, managed by Sierra Crest Investment Management, in which Mount Logan holds a 24.99% interest, portfolio quality remained resilient during the second quarter. Debt investments on non-accruals improved to 5.7% of the portfolio at amortized cost, down from 6.2% in the prior quarter. The debt portfolio remains highly diversified across 71 portfolio companies and 33 industries, with approximately 63% in first-lane senior secured loans and a weighted average yield of 12%, excluding non-accruals and CLO income.

The broader private credit market remained resilient during the quarter, though transaction volumes were lower and remained selective across the opportunities we saw in the market. Software credit spreads widened further and now sits several 100 basis points wide of the broader single B-rated loan index, reflecting sector-specific sentiment around AI disruption rather than broad-based credit deterioration. Our software exposure across our managed portfolios remains concentrated in mission-critical, vertically specialized businesses with proprietary data, embedded workflows, high switching costs, and first-lane seniority, and the underlying portfolio companies continue to perform. We view the current environment as one that rewards discipline and selectivity and believe any further dislocation should create attractive deployment opportunities for our credit strategies.

The same discipline also informs how we're thinking about inorganic growth. And the Yieldstreet transaction is a clear example of a unique opportunity for our business. As we announced in March, one of our core asset management vehicles, SOFIX, entered into a definitive agreement to acquire the assets of Yieldstreet Alternative Income Fund managed by Willow Wealth. As of July 31, I'm pleased to report that over 50% of Yieldstreet shareholders have voted to approve the transaction. As a result, we believe the transaction will close during the third quarter, with benefits beginning to accrue in the fourth quarter and ramping into 2027. The addition of Yieldstreet is expected to nearly double SOFIX net assets, adding over $100 million to the fund. We continue to believe this transaction will unlock at least $2.8 million of run rate FRE annually to Mount Logan, which represents approximately 30% growth over our 2025 FRE. The transaction is expected to be immediately accretive to our earnings per share once closed. We believe this is an important step in scaling our asset management platform and increasing our recurring fee-related earnings.

As mentioned, the current environment in private credit is creating additional opportunities for disciplined, well-capitalized companies like Mount Logan to acquire strategic assets at attractive valuations. We are pursuing an active pipeline of potential opportunities, and we look forward to updating investors on the progress we're making executing against our M&A growth strategy. Another important component of our strategy for SOFIX is improving the fund's retail distribution, which will be a larger fund with broader appeal following the close of the Yieldstreet transaction.

We've recently added a third-party distribution partner, and through our staffing and servicing agreement with BC Partners, have made an internal investment to expand the sales team that Mount Logan leverages. We believe the combination of select third-party relationships and targeted internal sales resources provides a balanced structure that broadens our reach while maintaining our cost discipline. Over time, we believe our investment in distribution will drive additional fundraising, increased asset center management, and support growth and recurring fee-related earnings.

The last initiative I want to review today is our focus on unlocking organic growth within our insurance segment and its permanent capital base. In July, we announced that AM Best, a leading global credit agency specializing in the insurance industry, assigned an investment-grade rating to our wholly owned life and annuity subsidiary, Ability Insurance Company. This was a significant milestone for Mount Logan and Ability, providing an independent third-party validation of Ability's financial position. The investment-grade credit rating underscores the strength of Ability's financial profile and reflects the significant capital we've invested since we acquired it in 2021. We believe AM Best rating is key to unlocking the full earnings potential of our platform and supports future distribution of Ability's insurance products.

Following the receipt of Ability's rating, this morning we announced the next step in our insurance journey by officially launching Ability's initial suite of multi-year guaranteed annuity products, available three, five, seven, and 10-year terms. To support this distribution, Ability has partnered with one of the nation's leading independent market organizations and is initially able to write across our existing multi-state license footprint, with plans to expand into additional states over the coming quarters. Direction origination gives us greater control over product design, pricing, and the pace of liability generation. And importantly, every incremental dollar of retained liabilities has the potential to generate both spread-related earnings within ability and management fees at the Mount Logan Management, the flywheel we have been investing towards. We view the controlled liability origination and product innovation as core to building durable spread-related earnings. We cannot understate the significance of this launch, which we believe will drive a meaningful step-up in the long-term earnings power and outlook for the insurance segment, as well as drive increases in fees earned by Mount Logan management for its efforts managing ability to investment portfolio.

Before I turn the call over to Brandon, I want to emphasize the progress we are making against several key strategic initiatives across the Mount Logan platform. During the first half of 2026, we solidified our insurance growth strategy, progressed the inorganic expansion of our managed AUM, strengthened SOFIX distribution capabilities, all while working towards the completion of the Yieldstreet transaction. Each of these initiatives are designed to increase our scale, expand recurring revenue, and enhance the earnings power of our asset management and insurance solutions businesses, further enhancing our business' foundation, underpinning future durable long-term organic growth. We are encouraged by the momentum already reflected in our results, particularly the continued growth in segment income and the increasing contribution from insurance solutions. At the same time, many of our most important initiatives remain in the early stages of contributing to our reported financial results. As we continue to execute, we expect these efforts to drive further momentum during the balance of 2026, with our financial impacts becoming more meaningful in 2027.

With that, I'll turn the call to Brandon, who will walk through our financial results in more detail.

Thanks, Ted. Good morning, everyone. For the second quarter of 2026, total revenue was $8.7 million and the company reported a net loss of approximately $4.2 million, which represents an improvement of $1.8 million from the $6 million net loss reported in the prior quarter. The sequential improvement in the company's net loss was primarily driven by lower expenses. Against that backdrop, segment income increased to $4.3 million in the second quarter of 2026 from $3.2 million in the prior quarter, driven by sequential improvement in both FRE and SRE.

Looking at our segment results, asset management revenue for the second quarter of 2026 was $2.3 million, compared to $2.5 million in the first quarter of 2026. Near term, we expect core management fee streams to increase, but to be partially offset by the wind down of certain non-core legacy fee vehicles, including the Ovation Alternative Income Fund and our Mount Logan managed CLOs.

Importantly, we are beginning to replace legacy revenues from non-core vehicles with newer, more scalable and recurring fee streams, as well as by growing our existing core revenue streams. This includes our profit-sharing arrangement with the majority owner of Sierra Crest Investment Management, the expected addition of over $100 million of assets in SOFIX from its acquisition of the Yieldstreet Alternative Income Fund, which is expected to close in the third quarter, and the benefit of $120 million of managed assets from an existing relationship, as well as higher transaction and advisory fees. We are beginning to see contributions from these initiatives, and we expect their impact to become more visible as they scale.

Turning to insurance solutions, net investment income, including net investment income from our consolidated variable interest entities, was $18.5 million for the second quarter of 2026, a decrease of $1.7 million or 8% from the first quarter of 2026. Excluding funds withheld and including intercompany elimination of management fees, net investment income for the second quarter of 2026 was $13 million, a decrease of $1.6 million or 11% compared to the first quarter of 2026. The investment portfolio generated a 6.2% yield or 6.6% excluding funds withheld and our insurance AUM increased to almost $1 billion, an increase of $126 million from the same period in the prior year. This growth reflects the agreement announced during the first quarter of 2026 to manage an additional $120 million of assets benefiting fee-related earnings.

During the quarter, we continued to focus on optimizing and hydrating the insurance portfolio through disciplined portfolio rotation and deployment, while maintaining a high level of invested assets to support spread earnings. Over time, direct origination has the potential to meaningfully increase the earnings power of our insurance solutions business while also supporting growth in asset management fees as the investment portfolio expands.

Looking at core earnings, fee-related earnings or FRE were $1.4 million for the second quarter of 2026 compared to $1.2 million in the first quarter of 2026. Importantly, we continue to make progress towards improving the mix and durability of our fee-related earnings. Management fees, incentive fees and equity investment earnings and other fee income totaled approximately $4.3 million before intercompany elimination and were broadly unchanged sequentially. The benefit of the Vista mandate was offset by lower fees from BCIC, Ability and non-core vehicles. Additionally, we did not earn advisory or transaction fees during the quarter compared with approximately $0.1 million earned in the first quarter. Looking ahead, we expect FRE to continue to improve as the strategic initiatives Ted discussed begin to contribute more meaningfully.

Spread related earnings or SRE increased to $2.9 million for the second quarter of 2026 from $2 million in the first quarter. The quarter benefited from the favorable Guardian block assumption update, lower general and administrative expenses and lower interest expense. Beyond the assumption update. We continue to benefit from the actions we have taken to lower financing costs and improve the underlying economics of the insurance platform.

Finally, moving to our balance sheet, Mount Logan's capital position remains strong with approximately $92.3 million of cash, restricted cash and cash equivalents, including VIEs, with limited near-term debt maturities. Finally, as Ted mentioned earlier, the Board approved a dividend of $0.03 per share for the quarter, continuing our 28 consecutive quarter dividend track record.

Looking ahead, expense discipline and operational efficiency remain priorities across the platform. More specifically, our priorities remain prudent in discipline expense management, driving operational excellence, continued growth in recurring fee-related earnings and increasing the contribution from insurance solutions to MLC's P&L. Several of the initiatives Ted discussed are just beginning to or haven't yet started flowing through our financials. As we continue to execute against our growth strategy and in turn grow our fee-earning AUM and continue to scale our new and core revenue streams, we expect their impact to be more visible through the second-half of 2026 and into 2027.

With that, I will turn the call back over to Ted.

Thank you, Brandon.

Before we open the call for questions, I want to reemphasize the durability of the model we are building. Mount Logan operates as an integrated platform across a scalable asset management business with disciplined private credit franchise and a permanent insurance platform and capital base. The business is designed to compound recurring earnings across market cycles. We believe progress today is underway to drive further momentum through the balance of 2026 and a more meaningful acceleration in earnings and value creation in 2027 and beyond. This concludes our prepared remarks.

Operator, if you could, please open the call for questions.

Thank you.

(Operator Instructions)

Sam Finkelman, Canaccord Genuity

Hi there. Great, thanks for taking my call.

I have a couple kind of quick questions. I guess the first one would be kind of how should we think about the outlook for the second half of this year and going into next year? And I guess kind of a follow-up on that is once the Yieldstreet transaction closes, M&A is still a big priority for you guys. Thanks.

Thanks, Sam. Yeah, I'd say two things. One is we do expect our FRE to begin to inflect. The Yieldstreet transaction is expected to close this quarter, as we mentioned, which will add some earnings. And again, as we direct right for Ability, which we just launched today, you'll begin to see some seeding commissions as well as growth in AUM. So we really spent the last six to nine months in the investment phase, and you should see the results of that come through in the fourth quarter and next year.

In terms of M&A, our M&A pipeline has never been larger. With the volatility around private credit, there's two things going on. Some very large managers are exiting smaller vehicles, particularly public vehicles, just because it's a distraction for their core franchise. And the second thing is smaller managers are just having a hard time raising money and growing their platform and getting it to scale. So I would expect us to be very active on the M&A front over the next, 6 to 12 months.

Okay. That's great. Thanks.

Thank you.

Thank you. One moment for our next question.

Justin Marca, Lucid Capital Markets

Hey, guys. Good morning.

Just to follow-up on the Yieldstreet transaction. Are there any other regulatory or other approvals required for the deal to close?

No. We've gone through the SEC process, and we've now got the shareholder vote, so it's just a matter of getting it closed.

Okay, alright, great.

And then another follow-up on the M&A conversation. What's your process like for sourcing new opportunities? Is it, these smaller managers that are struggling that are coming to you guys, or do you have a dedicated team that is focused on outreach?

It's multifold. I think, we're in constant dialogue with a lot of our peers around doing things together. A lot of it's social slash, productive sourcing. And then, we've been the big consolidator in the middle market, the lower to middle market. So, we typically get introduced to a lot of people who are looking for strategic alternatives. I think it's a combination of people know that we're the acquirer. Again, like the big guys have obviously made a series of acquisitions. But in our space, we really are the only ones. I think it's a combination of like, we get the first phone call just given we've been the biggest acquirer. Coupled with the fact that we're in constant proactive dialogue with a lot of people.

Got it. Okay, thanks.

And then switch to the insurance side, congrats on the role of reliability. As you ramp directly writing policies, is the intent to eventually replace the policies you've reinsured with the ones that you're directly writing? And then, longer-term, do you have plans to expand the product set beyond the MYGA?

On the first part, like direct writing, you control your own destiny a little bit better in terms of like, predictability around flows. And theoretically, we should be able to source liabilities for cheaper. And again, that's super accretive for ROE. That's why it's so important to us. We're not going to stop reinsuring other people's policies. Because, again, it diversifies our funding sources and it's still economic for us to do so. I think we'll continue to kind of do both.

And then, sorry, what's your second question?

Just, sort of longer-term plans. Do you have any other products outside of the MYGA?

The answer is yes. I mean, the answer is the market continues to evolve. The annuity space is a very competitive space and become more so. We've had to be a lot more thoughtful on the asset side because liability costs have been a little bit more elevated than they have been versus history. I think we're going to, I wouldn't be surprised to see us do other products. But all that being said, I mean, really our goal is to take risk on the asset side, not the liability side. That's always been our business model, and I think we'll kind of can stick to that, like minimal insurance risk. And we'd prefer to kind of make or break ourselves on the investment side.

And I would just add that our ability to direct right opens all of those doors, though. We'll certainly look at and consider other products, FIA, RILA, et cetera, to the extent they work for our current cost of capital. But again, direct writing is the panacea. Now that we can directly distribute insurance through our third-party marketing organization, we can sell, again. All the full suite of insurance products that the market is looking for.

Okay. All right.

And last one for me, maybe for Brandon, on fee-related earnings. Was there any specific driver to the quarter-over-quarter increase in other fee-related income?

That's our profit share interest. And it's largely driven by incentive fees, which can ebb and flow. I would say nothing in particular. This quarter I just had, there was a true-up from the prior quarter that did flow through the current period profit share. But again, it was a couple hundred thousand dollars. It's under $200,000, I believe.

Okay. All right, great. That's all for me today. Thanks, guys.

Thank you.

Thank you. (Operator Instructions)

Charles Burns, CIBC

Good morning, Ted. Good to hear the update this morning.

I just had a couple of questions. The first one is with the AM Best rating and the recent regulatory approval to write direct business. Can you elaborate on the opportunities this creates?

Yeah, I mean, it does a couple of things for us. One is it allows us the control on destiny and control the flows a little bit better, so we can kind of take in flows as we see the investment opportunity evolve. So, if there's good opportunities, we can ramp it up and down. And obviously like flexibility around pricing. It also allows us to look at new products like pre-need and some other things we've been looking at to basically expand our product set versus just taking what the market's given us. I think it gives us a lot more flexibility and hopefully, we think practically cheaper liabilities. In insurance, given the leverage embedded in the model, small savings in liabilities lead to big changes in ROE. We're hoping this drives, AUM and ROE for us.

Okay.

Second question is, why is direct writing more economically better than reinsurance?

The answer to that is typically when we reinsure from another provider, we pay them a seating commission. Generally speaking, we pay people some kind of commission for them to originate for us versus when we originate ourselves, obviously the origination costs are lower. As we mentioned earlier, we're generally speaking using a third-party to distribute our product. Obviously, we have an economic arrangement with them, but it tends to be more economic from a ceding perspective than just pure reinsurance.

I guess you have to share with other, you share less, I guess. That's the bottom line.

Yeah, that's absolutely what I said.

And I guess the final thing, asset managers had a pretty rough goal in 2026, but recently there's been, it seems like a reasonable rebound in a number of them. Why do you think Mount Logan stock has lagged relative to these other asset managers recently?

Yeah, I think the answer to that question is, generally speaking, anytime there's a big sell-up in the markets, and I've just followed this for my whole career. Generally, the things that come back first are the larger, most liquid, in this case, asset managers, but it could be the same thing for other asset classes as well. Generally speaking, when there's a rebound in asset management, you'll have the big guys rally first, and then we kind of get dragged up after. I continue our stock doesn't reflect fair market value. I bought stock last quarter, and I'll buy stock this quarter as well, and we'll just keep buying stock until the price reflects fair market value.

Okay, and I guess the final question is the interest rate backdrop. I mean, seems like interest rates are more or less on hold. Although they backed up since the war started, is the current interest rate environment a positive or negative for you guys?

I mean, it's definitively positive. I mean, like higher rates, the question is always like, why are rates higher? And, we're levered to short-term rates. Most of our assets are floating rate risk. So, short-dated rates are actually, higher rates are just good for us, we just can make more money. And generally speaking, we're paying out a mixture of fixed and floating on our liabilities. So, higher is better for us, and it all depends on what that does to credit. But again, you can see, economic strength. I mean, the economy is doing really well in the U.S., which is really what we're levered to. And, credit is still pretty benign. There hasn't been a lot of defaults. So, higher rates in a good economy are good for us. Higher rates that cause credit issues are not as good for us, but yeah, higher for longer is good.

Okay, thanks very much.

Thank you. One moment for our next question.

And that will come from the line of [Jonathan Rothschild]. Your line is open.

Hi, I'd like to know something about executive compensation, how many employees you have, and what is the structure of your compensation relative to stock and cash?

Yeah, okay. I take all of my compensation in stock, as is all the management team. And the way that, it works is BC, which provides a lot of the support for the vehicle, gets, a basis point fee, but it's a very low below market fee. It's really just to cover costs. So, we do not take cash comp. We do not, and we're aligned with shareholders, just the way we get RSUs in stock.

Do you have incentive options, or is it based on the spread and profitability? Is it a commission-based compensation? What is the structure?

It's all in our proxy. Basically, it's all we do not get paid in options. We do not get paid commissions, generally speaking, in stock grants.

Service-based vesting conditions, so time.

We all get to talk if that's over time, as long as we're still here. And again, we do not take cash comp.

Okay, and in the last call, you said you weren't able to tap the $10 million buyback. Is that calendar changing it anyway?

No, it's always something that we're considering. And we weigh it versus buying stock personally and buying stock in our funds and everything else. But we're very committed to, investing the stock price at these kinds of levels.

Okay. Thank you.

Thanks.

Thank you. One moment for our next question.

Vitri Munjal, Canaccord Genuity

Thanks, Operator. Sorry we had some difficulty queuing our questions. I'm filling in for Matt and a couple of questions.

First, on FRE, it's improved sequentially. Could you walk us through what specifically needs to change to drive the inflection? Is it going to be a function of fundraising, fee rate mix, or just expense discipline, please?

Q2 FRE increased to $1.4 million from $1.2 million in the prior quarter. That said, we agree there is considerably more work to do there, as we continue to execute on our strategic initiatives and scale the business. I would say all of the above, in response specifically to your question, we absolutely need to grow our fee earning AUM, hydrate our portfolios to optimize earnings. And then expense discipline is also like, in my personal opinion, a huge catalyst for that (inaudible)

That's helpful. And the second one on SRE. How much of the improvement would you categorize as sustainable versus driven by the favorable Guardian reserve adjustment? Just trying to get a sense of like the team base going forward.

I think long-term, it's critical that we grow the insurance business and frankly decrease or shrink the attribution to SRE from our long-term care book, which is where the volatility comes from in our insurance business and our SRE metric. There are a couple of gives and takes in the quarter. I would say there's about a net $600,000 benefit to SRE this quarter, $6,700 from the Guardian assumption update offset by other non-recurring items in SRE that will attract this quarter. That said, we are, the assumption update comes with the insurance risk we hold today from our legacy long-term care blocks. And again, the goal is to continue to minimize their significance to our overall P&L through our direct writing insurance.

That's it for me. That's very helpful. Thank you so much.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks.

Thank you all for your time today. As always, please feel free to reach out to us with any questions. We're always happy to discuss. We look forward to speaking to you again in November when we announce our third quarter 2026 results. Thank you so much and have a great rest of your week.

This concludes today's program. Thank you all for participating. You may now disconnect.