MLCI Q3 2026 earnings call transcript, November 6, 2026

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Mount Logan Capital's Third 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 realize apply 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 risks associated with Mt. Logan Capital's 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 conference call is hosted by Mount Logan's Chairman and Chief Executive Officer, Ted Goldtorp, President Henry Wong, Chief Financial Officer, Brandon Satterin, Executive Vice President and Chief Operating Officer, Jordan Mangan, and Head of Investor Relations, Scott Chan. I will now turn the call over to Mr. Goldtorp. He may begin.

Thank you, and good afternoon, everyone. At the start of the year, we said 2026 would be about execution. We did what we said we would do. Today, I want to walk through what we delivered, what has not reached our financials, and why we expect Q4 in 2027 to look different. We expected to announce several straight 2G transactions by year-end. We have now announced three, and two are complete. On August 25th, the Mount Logan-Managed Opportunistic Credit Interval Fund, or SOFIX, closed its transaction with Yieldstreet. September 29th, we completed a merger of one of our non-core vehicles, the Alternative Credit Income Fund, or ASIF, into a permanent capital vehicle, BC Partners Lending Corporation, or BCPL. That merger provides new, higher-quality revenue on a permanent vehicle and strips out meaningful costs. The third, the proposed AFA asset-based lending fund, is expected to close in the first quarter of 2027, subject to approvals. It gives us a new core vehicle oriented on space. Special Safety Finance, an area where we have deep expertise and a product tailored to that strategy that we can actively distribute through retail channels. Alongside these transactions, we reached two significant milestones at Ability, our Nebraska-regulated insurance subsidiary. In July, Ability received its AMS rating, which enabled the official launch of its direct origination of multi-guaranteed annuities in August. We were already beginning to see positive signs of different

distribution momentum, and we view this as a core component of Mt. Logan's organic growth story. We're also actively evaluating new adjacent products. Following these announcements, on October 27th, we announced that BC Partners, a longstanding shareholder and strategic partner of Mt. Logan, has adopted a Rule 10B-5-1 and 10B-18 trading plan by additional Mt. Logan common stock for the next 12 months. Basically, BC Partners held approximately 2% as of that date as actively working to increase its ownership position. We see that as a further expression of the alignment between our two organizations. On financial performance, Q3 was a transition quarter for the business. Each of our completed transactions and the launch of Ability's direct origination happened during the quarter. As a result, our results carry very little of their expected long-term benefit, and we recognized one-time transaction-related costs up front. Despite this, the year-to-date segment income, our non-GAAP measure that combines fee-related earnings, or FRE, and spread-related earnings, or SRE, was $11.5 million, up from $9.5 million for the same period last year. Our net loss also continued to improve quarter-over-quarter, and we expect next quarter's results to converge more closely with the true earnings power of our business. Our board also approved our 29th consecutive quarterly dividend. of $0.03 per share. Future dividends remain at the board's discretion, but returning a portion of our cash fees to shareholders remains important to us. With our 2026 strategic priorities complete, and while we continue to evaluate prudent opportunities for growth, our focus is squarely on improving operating cash flow and gap profitability.

Let me step back to the broader private credit and alternative asset management market and why we are seeing it as an opening for a platform like ours. Private credit this quarter, the message has been clear. Transaction activity has been even. Outcomes are diverging between managers, institutions that are concentrated capital with fewer platforms that have proven underwriting across differentiated credit strategies. We believe we have built that. And while alternative asset managers have faced challenges year-to-date, redemption requests that the largest semi-linked funds are easing, wealth flows are recovering. Mount Logan benefits from a sticky, stable capital base. That allows disciplined deployment and lets us hold the line on both risk and returns. We don't have to do big deals that dilute returns, and we can remain diligence-heavy credit investors. The industry is also consolidated, and Aries Agreement in late October to acquire MidCap Financial is the latest example. These transactions reinforce the value of permanent capital vehicles. Investors benefit from scale and diversification, and managers earn recurring fees on a durable capital base. For Mount Logan, consolidation is an opening to continue to grow. Sub-scale funds need a home. Through Yieldstreet, ASIF, and now AFA, we've shown that we can bring them into our ecosystem to the benefit of those funds, their investors, and our shareholders.

Let me add detail on each, starting with Yieldstreet. Stocks acquire approximately $130 million of assets, effectively doubling the funds. On the larger base, we now expect the transaction. to contribute more than $3 million of annualized FRE, up from $2.8 million we cited on our August call. We also have added internal retail sales resources and a third-party distribution partner to drive organic growth. On ASIF, the merger removes the cost of a standalone fund, and together with a revenue-sharing agreement with BC on BCPL, expected to add approximately $3.5 million of annualized net FRE, with benefits beginning in the fourth quarter. Both transactions are immediately accreted to FRE and earnings per share. Together, we expect them to add approximately $6.5 million of annualized FRE, with its first meaningful contribution in Q4. That is a significant step up in our asset management earning base, and one we do not believe the market is yet credited. With respect to the recently announced AFA transaction, it adds approximately $230 million of AUM, and would double our interval fund. platform to about $460 million of assets, making our second evergreen credit fund distributed through the retail channel. We expect it to be immediately accretive to FRA on closing, acquire, consolidate, distribute. We believe that's a repeatable model. At Ability, the goal was to move beyond managing a closed block and originate new business directly, rather than relying on third-party insurers. While the AMBEST rating in place and reliability launched, we are now

active in the marketplace. We are early in the production ramp and expect the benefits to build as we enter 2027. Looking ahead to 2027, there are four things to watch. Step up in FRE from this year's completed transactions, progress in retail distribution, Ability's production ramp, and cost control. We are reviewing corporate overhead, professional expenses, and fund-level infrastructure to improve operating leverage. Each of those ties back to the three pillars of our growth story. which is this year's execution and simplification have strengthened. First, ability with direct origination and a more diversified liability base, expand investable assets, generate spread earnings at Ability, and management fees at Mount Logan Management. That is the flywheel we always talk about. Second, our core investment platforms, including SoftEx, where we combine organic fundraising through expanded distribution with selective acquisitions of fund assets. Third, our BDC ecosystem, where we hold economic interests and cash fees from BCP Investment Corporation, BCPL, and where consolidation creates more efficient, scaled vehicles and stronger fee economics. A common thread is that we use the capabilities and infrastructure we've already built to attract durable capital and improve operating leverage. With that, I will turn the call over to Brandon to walk through the results.

Thanks, Ted.

Thank you, Brandon.

This concludes your prepared remarks.

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

Thank you, and we will now begin our question and answer session. If you would like to ask a question, please press a star one on your telephone keypad. You will be advised when to ask your question. Again, that would be star one on your telephone keypad.

Hey, guys.

So I just want to start with insurance. You touched on reliability with your prepared remarks and expanding distribution channels. I wonder if you can give any color on progress there and how long you might take to see some benefits. SRE, and also what additional product verticals you guys are evaluating? Yeah, great question. So obviously, we put some of the money from our 180 capital transaction into our insurance company. So strengthening is capital. We've started direct writing this summer, and we're beginning to see it rampant. And so it allows us to kind of control our own destiny a little bit. And, uh, policies in line with our investment deployment. So, um, really it's de minimis impact on SRE this quarter and probably for the fourth quarter. And we expect to see the benefit come through, um, next year. So there's a lot of work being done in terms of education of agents and, you know, we operate in many, many States. Um, we sold our biggest policy ever, uh, quite recently. So from our perspective, it's, it's, uh, something we're very, very excited about.

Um, and then switching over to asset management, um, you know, we've heard recently from other equipment finance and ABL lenders that they're seeing a lot of growing demand in that space versus, you know, traditional sponsor backed loans. And obviously the AFA transaction will add some diversification to your credit portfolio. Was that, you know, some of the primary drivers behind the decision to pursue the AFA transaction? Yeah, no, definitely. So a third of our assets now are in specialty finance. So if you think about, like, the evolution of private credit, it started off as being middle market lending. And, you know, now it's large cap corporate lending. You know, we, you know, we began to take market share now from the regional banks. So after Silicon Valley Bank failed, you've had higher rates, a lot of people are lending money at fixed returns. And compliance costs have gone up and credit quality has weakened for certain parts of the consumer. So it's created a big opportunity for us to step in. We've been doing this business for a very long time. AFA gives us a set, like these loans that we do are typically illiquid. So you need to match it with your liabilities. And AFA provides us with an ability to kind of directly originate things into AFA, which are, you know, really good return on this market. So it's an area that we've spent with real expertise in. This acquisition gives us capabilities to execute on that.

And Justin, I would just add that with our commitment to the retail business, it's important for our salespeople to have more than one product to sell to increase their hit rate for each meeting with an RIA that they have. And now they'll have a second product to complement the Opportunistic Credit Interval Fund with a completely different strategy. Specialty Finance also being a core strategy that our platform has generated differentiated performances.

Got it. Thanks. It's good color there. And then maybe just last one for me, switching over to capital employment, you know, between share purchases and additional M&A, you got to close the discount to book. Since 2Q a bit, but still an opportunity for, you know, buying back to stock. Curious on your thoughts there. Yeah, I mean, we've given us a lot of thought. And we have a lot of good uses of our organic cash. The flip side is we should be buying stock. So, you know, obviously we announced that we are going to be buying stock. And, you know, we're trying to buy as much as we can. And, you know, performer. For that, we'll be close to 30 percent insider ownership. So, we're trying to basically clean up our capital structure a little bit. And upon the advice of a lot of our shareholders, we just thought that was the right way to go. So, hopefully, we're just going to keep buying our stock to discount even more.

All right. Great. That's all for me today.

Thanks, guys.

Thanks.

And the next question.

Good afternoon, guys.

Thanks for taking the time for my questions. First, you made some revisions on how you report the SRE and FRE portion share of operating income and then that really I've realized. Can you talk a little bit about what drove the change? Why is this current reporting better reflective of the underlying? Yeah, I'm going to let Brandon answer this question, but I would say the real objective is over the last couple of years, we've really tried to clean up the way we report to investors to be, you know, give you guys a little bit more consistent view and more clear view of how the operating business is doing. But why don't I turn over Brandon to get an answer to that question? Yeah, so I'll start with SRE. That's, you know, that was the bigger change, certainly more impactful to the financials. So first and foremost, the change aligns with the industry and all of our peers. Secondly, the economics of the insurance business are spread-based, hence the name, and including elements of return outside of spread can distort the metric and drive significant volatility period to period. That don't reflect the core operations of the underlying business. So that's SRE. So on FRE, we are a highly acquisitive platform. And when we go out and we acquire a minority interest in an asset manager that is also controlled by the BC Partners credit platform, the thesis for those transactions is to drive figure-related earnings for Mount Logan Capital.

Through its asset management business. So that change, while a small impact today to FRE, frankly, was negligible in Q3, it better aligns with the thesis for those transactions. And we will certainly look to do them as opportunities. Does that answer your question? Yes, yes. Now, I'm going to follow up on that. I'm just looking quarter over quarter, dropping earnings probably below expectations. How should investors think about what's the run rate in that division? You're running about, you know, you had a half a million dollars. I know you were one-offs, but what's a real run rate? How does it look in 2027? Yeah, so if you just take the four and a half million of that for regenerated year to date and you layer in the... $6.5 million annualized benefit to FRE we mentioned in our scripted remarks, that generates well in excess of $10 million of FRE for 2027, and that does not include the impact of the potential AFA trend.

On the direct underwriting, what's the ramp-up looking like? What's the potential impact? In terms of savings, and what do you see that's going on in the next couple of years? Well, I would say we'll look to continue to scale this component of our business. It's incredibly strategic. Now we have the capability to organically grow it for Mount Logan Capital. Now, I'll say in terms of progress, ramping that initiative. It's going to take a couple quarters for us to onboard agents through our distribution partner and get Ability's product out there. But to date, we've got over 70 agents on board now actively selling our reliability products under the Ability Insurance Company today. So we're only focused on MIGA at the moment, but we are exploring other products that we are optimistic will bring to the market in 2027. I don't know if I could sneak one more in on the – just what do you see on the private credit side? Do you see opportunities to pick up portfolios? And, you know, how do you see this business, you know, shaping up over the next few quarters? Yeah, I mean, I think all the headwinds that were experienced by our sector earlier this year – every time there's something like that happens, there tends to be an increase in consolidation. I mean, just size matters. So, you know, we right now have a number of transactions that are LOI that we expect to announce. And obviously, there was a big announcement this week in the BTC space of a merger. So, I would say I think you're going to see continued consolidation, and we could do that in a very, very creative way for our shareholders.

So, you've seen – Sure. No, this wouldn't require – or any issuance of Mount Logan stock. So, a lot of this is us merging our existing vehicles with others, and it's very creative from a fee perspective. So, if you look at the return on investment capital, are we on this business, let's say, now versus – now, what you're seeing in terms of transaction accretion compared to a year ago, how does it look? Oh, very favorable. I mean, you can't just, like, go buy companies, but, you know, like, the market for asset managers got a little bit – you know, some things trade as high as, like, 35 times forward-adjusted FRE. I would say, at the small end, it's just a different valuation. So, like, we're working on one right now where we would not have to put up any capital. But generally speaking, we can buy these things for, you know, anywhere from three to five times FRE. And, you know, obviously, that should be accreted for our shareholders. Awesome.

Thank you very much.

And there are currently no questions in the queue. Please be reminded, if you would like to ask a question, please press the star one on your telephone keypad. And the next question comes from the line of Chuck Burns with CIBC. Please go ahead with your question.

Ladies and gentlemen, this concludes today's conference call.