Mount Logan Capital Inc.

Hello, everyone, and welcome to the MRC Q2 2025 Earnings Call. My name is Emily, and I'll be coordinating your call today. After the presentation, you will have the opportunity to ask any questions by pressing Start, followed by the number 1 on your telephone keypad. I would now like to turn the call over to Ted Goldthorpe to begin. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us for our second quarter 2025 results call. During the call, we refer the information provided for second quarter 2025 press release, MD&A, and interim consolidated financial statements, all of which were released Thursday evening and are available on our website and on CDAR. Joining me this morning to discuss our results and outlets for the business is our Chief Financial Officer, Nikita Klotsen, our President, Henry Wong, and our Head of Investor Relations, Scott Chan. As a reminder, All references to dollar amounts on this call are in U.S. dollars, unlike otherwise stated. Overall, we made progress on key business initiatives during the quarter and remain confident in the direction of the business, and we are looking forward to sharing more about that with you today. We're also pleased to announce that we've obtained our 24th consecutive quarterly dividend, which consists of a two Canadian cents per share distribution for shareholders of record as of August 19, 2025. As a reminder, during the first quarter, we announced a transformative all-stock combination with 180-degree capital for a term, which remains subject to the regulatory and shareholder approval. We filed a joint proxy statement with the FTC around the proposed combination, and the proxy materials were declared effective on July 11, 2025. We have since held a joint call with 180-degree capital's management team to review term preliminary Q2 2020.5 results, which remain strong, consistent with the Q1 performance earlier this year, despite the broader market volatility. The joint call also provided an opportunity to discuss our continued excitement around the proposed business combination and to provide folks with an update ahead of our special meetings of shareholders, which are currently scheduled for August 22nd. As part of the process, Mt. Logan has engaged in several productive discussions with our shareholders. Overall, we've seen a strong shareholder support and received positive, encouraging feedback on the strategic rationale and long-term potential of the combined businesses. We anticipate this transaction closing shortly after the shareholder meetings are concluded. Following the combination, the company will continue to operate under the Mt. Logan banner and is expected to be listed on the NASDAQ under the ticker NLCIB. conditioning from its current listing on CBRA Canada. On the asset management front, Mount Logan's total assets managed on behalf of Ability grew to approximately $680 million. This represents approximately 64% of Ability's $1.06 billion in total investment assets for a long-term target of reaching 75%. Managing insurance assets continues to be a key area of growth for Mount Logan as we focus on scaling our fee-generating AUM through our investment management agreements. The growth in insurance AUM follows an investment by Mount Logan into ability at the end of the first quarter and reinforces the organic engine and flywheel effects that we've built at Mount Logan. Investments into ability enable us to insure or reinsure new business, which increases the assets managed by Mount Logan for the benefit of policyholders. On the insurance side, Ability entered into a new reinsurance contract on May 15th, adding in excess of $40 million of MIGA policies through a co-insurance agreement with Ability to grow the amount reinsured through the remainder of the year. We also remain active in evaluating additional partnership opportunities to support future growth as well as new insurance product launches. With respect to the financial results, over the last 12 months, Mount Logan delivered fee-related earnings or FRE, of $8.4 million, representing 28% year-over-year increase. Spread-related earnings totaled $4.6 million for the short-curling 12-months, down from $11.6 million in the prior year, primarily due to actuarial adjustments and top performance in the sub-band focus business of the insurance company. The 0.7% spread earnings margin for the curling 12-month period was below our stated target of 1%. We view this as transitory and remain confident in achieving at least 1% spread earnings on our insurance books. Asset management and incentive fees for the quarter totaled $3.3 million, compared to $3.89 in the same period last year. The year-over-year decline primarily reflects the impact of the wind-down of probation's alternative income funds. Managing fees are expected to continue to decline as AUM rolls up, and we do not expect to receive incentive fees as it winds down. partially offsetting this decline with continued growth in fees from the ability insurance and opportunity accrediting interval funds. On the retail front, the opportunity to capture market share remains, given the low industry-wide allocation to private alternatives and the large total accessible market. While retail fundraising across private alternative strategies, including private credit, moderated in the second quarter and made broader market uncertainties, remain committed to this distribution channel and give it a key driver of long-term growth and go-forward investments. The Opportunistic Credit Interval Fund, or SOFIX, or Opportunistic and Diversified Credit Interval Fund, delivers another quarter of slight growth with net assets increasing to $156 million at the June 30th. Year-to-date through July 29th, SOFIX achieved 6.4% in positive performance and demonstrated resiliency amid a period of market disruption. We believe the strong performance of FFR in 2025 combined with its approximately 8.6 annualized dividend rule positions StockX well for the fundraising momentum as a differentiated opportunistic private credit offering. Meanwhile, AltCHIP, our other credit-focused interval fund, reported total net assets of approximately $204 million at quarter end. On the institutional side, Our CDC and CLO funds collectively represented approximately $1.1 billion in assets as of quarter end. These vehicles continue to provide good visibility into Mount Logan's top line, driven by stable fee income generated from their permanent and semi-permanent capital basis. On July 15th, we announced the successful closing of the business combination between Portman Ridge and Logan Ridge, present states that rebrand the merge entity as DCC Investment Corporations. The newly combined and scaled BDC will trade into the ticker BCIC. We believe this transaction delivers meaningful benefits and includes earnings accretion driven by increased sales. With over $600 million in combined assets, a long-term enhanced operational efficiency, greater capital flexibility, and improved market security. From an economic standpoint, Mount Logan will receive increased distributions from SierraCrest Investment Management, and its affiliates at SierraCrest will serve as the investment advisor to significant ways part of the VC as VC Investment Corp. On the CLO side, the AUM for quarter ends is approximately $509. We continue to evaluate opportunities to scale our CLO platform, following the successors' realized managing CLOs that we took over through the Gary Concepcion. Mount Logan managed the Specialty Finance Social Vehicle, the Ovation Alternative Income Fund, Todd's assets under management declined to approximately $105 million in the second quarter, primarily due to the scale of large assets in the fund. The fund is in wind down in our priority of maximizing value for our fund investors. We remain confident in the long-term opportunity within Specialty Finance. We see the compelling segment within credit credit. given its effective yield profile, structural projections, ability to serve credit-worthy yet under-debt market segments that are under-banked, and non-correlation to the traditional sponsor-backed direct lending universe. We continue to explore ways to leverage our key expertise to expand this platform and drive long-term value for shareholders. On the insurance side, tech and quarter investment assets were $1.06 billion in us every year over year. During the second quarter, Mt. Logan assumed a new multi-year guaranteed annuity block of $43 million. A daily total assets managed by Mt. Logan were $680 million. Insurance business remained highly strategic to Mt. Logan and a key source of growth looking ahead to the powerful flywheel effect of owning insurance and managing an increasingly larger proportion of the assets in-house. Expression of all of this is too costome. I'd like to take a moment to reiterate our continued enthusiasm about Mount Logan's long-term outlook and the opportunities that lie ahead. Results of business defined by sustained profitability across two core segments with clear visibility into near-term organic growth within our after-management insurance segment. The acquisition and investment capability remains the best example of how Mount Logan can drive growth organically. Since acquiring Ability, Mount Logan has paid over $40 million in capital to support Mido Reinsurance Agreement, an increase of managed AUM to $689. Today, Ability generates approximately $6.49 in annual gross run rate management fees and contributed $4.6 million in spread-related earnings over the last 12 months and is a centerpiece of our forward-looking business strategy. While the near-term focus remains on the announced 90-degree capital transaction, we remain committed to driving growth across our business, achieving excellent results for investors and shareholders in our managed vehicles. With that, I will hand the call over to Nikita to walk you through our financial results for the quarter.

Thanks, Ted. Good morning, everyone. I will now summarize our key results for the second quarter of 2025. As a reminder, all figures that are presented today will be in U.S. dollars. Now it will be in functional and present stations currently. For our asset management segment in the second quarter of 2025, we generated $4.5 million of revenue. Breaking down our asset management revenue further, our CLOs generated approximately $714,000 in management fees for the quarter. Ovation generated $517,000 in management fees from this underlying fund, and we also earned $340,000 in seven other manager fees. Topic, our internal fund, generated $917,000 in management and incentives. With regards to our BDCs, Logan Ridge generated roughly $800,000 in management fees, and we recognize a modest gain on our minority interest in Sierra Crest, which manages supporting Ridge BDCs. While these results contributed to revenues increasing by 42% quarter over quarter, the main driver of the increase in unrealized gains from our investments Elgin Runway, and other assets. The ex-management segment results also are impacted by AltBiz, another equal fund for which the relation had losses recorded within administration and servicing fees. Net losses on AltBiz were approximately $744,000 per quarter, driven by declining AUM and higher recurring non-reimbursable expenses of the funds. We incurred approximately $114 million in operating expenses in the app management segment in the second quarter. This includes $4.9 million of corporate overhead expenses, of which $2.3 million is attributable to transaction costs related to the current transaction. Excluding these corporate overhead costs, app management operating expenses increased 19% over a quarter due to the higher economic loss over AltSys, and amortization expense on the Ovation IMA as it mirrors the net asset value decline in the underlying funds. For the quarter ended June 30th, Mount Logan incurred $1.9 million in interest and credit facility expenses, which primarily relate to our corporate credit facility and debenture units. The interest expense increased slightly quarter over quarter due to the paid in-time interest on the debentures. Zero-rated earnings for $8.4 million for the trailing 12 months ended June 30, 2025. An increase of $1.8 million compared to the trailing 12 months ended June 30, 2024. SRE increased year-over-year due to the increase in fee revenue, equity investment earnings from SierraCrest, and other income, combined with decrease in general and admin expenses, other expenses, and increase in tax. Fee-worth revenue primarily increased due to the increased AUM for Ability, Soffix, and First Trust SMA, as well as our growth in Soffix's paid incentive fee net investment income that drove the company's increase in incentive fees. Equity investment earnings increased for the trail in 12 months and the June 30th, despite lower port and ridge fees earned as there were lower expenses incurred as a fair cost investment manager. General NIC and other expenses decreased due to the expiration of the Transition Services Agreement and tax expenses decreased due to overall net loss. The increase in FREs was partially offset by several increases in compensation costs from increased headcounts. Moving on to our insurance business, the insurance business generated $6.7 million in revenue, a slight decrease of $2.3 million compared to the prior quarter. The decrease in revenue was primarily attributable to a $3.5 million increase in insurance service bills due to losses reported on the newly assumed MIGA business, which are treated as owner's contracts on day one by IFRS, and a $1.9 million decrease in net gains from investment activities due to higher treasury yields. The decreases were partially offset by a $1.5 million increase in realized and unrealized losses on embedded services attributed to our fund's household assets, and a $1.6 million increase in net investment income due to lower investment expenses on assets held by the company under the ModCo agreement with VISTA. The insurance business incurred total expenses of $13.2 million, a decrease of $10.1 million quarter over quarter. The decrease was mainly driven by higher country yields in the current quarter, which resulted in insurance finance expenses being higher. $13.1 million lower compared to prior quarter. This decrease was partially offset by higher net investment income of $2.6 million on assets held by the company under its modified co-insurance agreement system. There also was a $369,000 increase in general and admin expenses due to higher credit loss provisions on several of the investment assets. SRE, or SRE spread-related earnings, was $4.6 million for the trail in 12 months ended June 30, 2025, compared with $11.6 million for the trail in 12 months ended June 30, 2024, a decrease of $7 million. The SRE decrease year-over-year was due to higher cost of funds, partly offset by lower operating expenses. Cost of funds increased due to an unfavorable impact and enforced update of $1.8 million related to the guardian block of our LTC business, whereas for the 12 months ended June 2024, there was a favorable enforcement impact of $4.8 million on the medical block of our LTC business. Additionally, higher interest accretion on our LTC liabilities further contributed to the increase in cost of funds. Other operating expenses have decreased as a result of ongoing efforts to streamline operations and reduce expenses. Mount Logan reported basic and diluted loss per share of $0.12 for the second quarter of 2025. This is compared to basic and diluted loss per share of $0.48 for the three months ended March 31, 2025. The increase in earnings per share resulted from a decrease in net insurance, finance expense, and increase in net investment income within the insurance segment quarter over quarter. As of June 30, 2025, Mount Wigan's balance sheet reflected total assets of $1.73 billion to a liability of $1.68 billion and shareholders' equity of $45.8 million. The decrease in shareholders' equity from the first quarter was due to cumulative net losses and distributions to its common share. On the net impact on the asset management side of the property, total assets decreased slightly by 1.5% quarter-over-quarter to $59.9 million. This is primarily driven by the decrease in intangible assets due to the liquidation of a large asset from the Ovation Fund. This is because the amortization methods on the Ovation Investment Management Agreement mirrors the NAV runoff on the managed assets. The decrease in assets was partially offset by an increase in other assets. Other assets have increased due to deferred tax assets arising from the county and tax differences. As imagined, total liabilities have increased 4.8% to $102.6 million, driven by an increase in our due to the mortgage balance. Profit expenses payable have grown in the second quarter in anticipation of the special dividend payment made. in mid-July to Logan Ridge shareholders. The quarter's net economic loss, attributable to the company's service agreement with Sierra Crafts, also increased the company's payable under the contract. On the insurance side of the balance sheet, total assets increased quarter over quarter by $26 million, or 1.6% to $1.7 billion. The increase in assets was attributable to an increase in investments as the new line of business from the National Security Insurance Company, or NSG, was ceded to abilities. This increase was partially offset by a decrease in reinsurance assets due to recoveries from reinsurers. Our insurance segment reported total liabilities of $1.6 billion, representing an increase of $23.5 million from March 31, 2025. The increase in liabilities was attributable to increases in insurance contract liabilities of $30.9 million, due to the assumption of the aforementioned new MIGA business, partially offset by higher treasury yields, leading to a lower present value of liabilities. The increase was partially offset by a $4.3 million dollar decrease in the investment contract liabilities as a result of increased MIGA surrenders, as well as claim payments, partially offset by interest depreciation on the MIGA liabilities. Our interest rate swap derivatives decreased by $1.4 million due to higher yields. Further, the fund was held's liability also decreased $1.1 million due to recovery from strength and security. Overall, the company has experienced fairly consistent SRE and SRE over the last 12 months, and we look forward to the transformational second half of the year ahead for Mount Logan in anticipation of the term transaction. I will now turn the call back to Ted for some closing remarks.

Thanks, Nikita. In closing, we are very excited about the prospects of our business. which reflects the durability of now-located fee and spread-related business models. Our managed funds performance remains strong, with low volatility, underpinned by our focus on investing in high-quality private credit assets that exhibit strong risk-adjusted returns. We remain excited about the opportunity to deploy capital and increase our asset center management, while we remain focused on enacting operational improvements to increase profitability across our system. We remain excited about the anticipated completion of our transformation, transformative business combination with 180 degree capital. We believe that the increased scale and expanded investor universe will slightly enhance our ability to drive growth in both fee and spread of our earnings. At U.S., we expect to grow our investor base and improve liquidity in our shares, which we hope unlocks valuation expansion and future capital formations. This concludes our prepared remarks. We'll now transition the call to a Q&A session. If the operator could please come in.

Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question today comes from Natalie Lee with Chemical Genuity. Please go ahead, Natalie. Natalie, your line is now open. Please proceed with your question.

Hi there.

Can you hear me now? Hello.

Yeah, we can hear you. Hi. Oh, okay. So, great. When we started thinking about the year, we kind of came up with an FRE and SRE of 11 million each, I think, at the beginning of the year. Obviously, you know, the first half has not kind of been on that run rate. But how did we get back to that? And is something structurally different now than what you had expected, you know, going into 2025?

Thanks for the question. So I think, obviously, the way interest rates behave from a macro perspective does have an impact. We are sheltered a little bit by our $187 million hedge that we have that covers some of our investment portfolio. I'd say the other pieces that we've been looking at is our legacy mortgage book hasn't been performing as well as we would have liked it to perform. So that's contributing to a little bit of the drag this quarter. and some of the reserves that we put up against that book. We're also looking at sort of doing workout arrangements with these mortgages, which can take a little bit of time, which you should see happening in the second half of the year. In terms of getting back on track, I mean, as we said, sort of the insurance business is the flywheel to Mount Logan's performance. And so... With the additional capital that will come with the term merger closing, I think it's really looking at how we can put that into its best use to generate return for investors. And so hopefully that will result in meaningful direct increases to FRE in that perspective.

Yeah, so what's the one-time thing that happens this year that we just don't think are ongoing? and we do have a lot of cash on our insurance company today that we can do with that. So between that and as you see that through just closing the transaction and some organic things we're doing, we expect that to really grow.

Okay, that's helpful. And then I want to miss this one because I was on another call, but can you update us on the timing of the term close and any more transaction costs expected for the rest of the year?

Now, that's the first part of it. I mean, you know, obviously voting just opened recently, and we feel very, very good about where we stand today. The actual date of the vote is August 22nd, and so that's kind of what we're pushing for. So, if we get the vote, then we expect to close, you know, sometime at the end of the third or in the fourth quarter. Okay, that's my vote.

On the On the cost side, I think the bulk of the cost was incurred with getting the merger agreement signed, getting the proxy on file with the FCC, which was declared effective in early July. So any incremental cost now is really just sort of the natural closing process. So we don't expect sort of the run rate that we had over the past six months to continue.

Okay, that's helpful. Thanks.

Thank you. The next question comes from Chuck Burns with CIBC. Please go ahead.

Good morning. I had a short question on if you could, again, review briefly. Maybe you touched on it in terms of capital, but with the 180-degree capital merger almost done or almost at the finish line, can you briefly go over the main benefits of this combination?

Yeah, for sure. Great question. And we should have, you know, hit that a little harder. And number one is, obviously, you know, we're going to increase the scale so that, you know, access to some of the public company costs that we bear. We do think we'll trade a lot better and have a lot more liquidity from the Western aspect. So the CBO of Canada has been a fantastic partner for us over the last period of time. But broadening... from liquidity and getting a bigger market cap, I think it can be very, very helpful for our valuation. Obviously, you know, that transaction comes with some cash. And that cash is, the management team at Turner has done a really good job at increasing that. So since we've announced the deal, their map is higher. And we plan to use some of that cash to help drive some of our organic opportunities that we're looking at. And, again, the last thing I'd say is, you know, the management team of 180 Degree Capital brings the skill set that we don't have, and we actually think that that is very creative from a deal sourcing perspective, and that should help with fundraising capital markets and everything else and so on that goes along with it. So this is a very, very good deal for our shareholders, and we're very focused on trying to get it done.

Okay. Thank you very much. Thanks, Josh.

Thank you. The next question comes from Martha Song with TD Securities. Please go ahead.

Hi. Thanks for taking my question. I have two questions. First is on the growing private credit sector and with annualized acquisition of Comvax earlier this week, which is quite interesting. Is there anything you can share on your current M&A pipeline?

Yeah, good question, actually. So, you know, that concept field, for those who don't know, was acquired by Manulife, and that business is a pretty good concept of what we're doing. And, you know, obviously, if you look on any multiple on either cash flow or what's publicly available in AUM, there's obviously a very high multiple. So, you've seen a wave of consolidation in our space at very, very high multiples, implying that a lot higher stock price for Mount Logan. So that's number one. And then number two is, you know, our energy pipeline is probably the highest it's been in a very long time. So we're working on a bunch of M&A deals right now. And I think it all goes back to the same theme, which is scale matters. And I think a lot of people have been including that, you know, showing with a big platform like ourselves allows you to get the enhanced benefits of growth and scale. So We think we're one of the big consolidators and beneficiaries of this, but I think all these, your point about conduct is a good one. I think it highlights the value on this platform.

Thank you. That's very good, Helder. And then my follow-up is from, you know, is there any potential macro-havelings that your team is currently monitoring just given the ongoing economic uncertainty?

Yeah, I mean, I would say, you know, the number one thing we're sensitive to is credit losses. As of now, as of now, we don't expect to have, you know, our portfolio is in very, very good shape right now. But that is the, that's probably the biggest thing that we have to focus on. You know, obviously, there's a lot of defects around rates. You know, a lot of what's happening today is actually inflationary versus deflationary. And so, you know, we don't really foresee massive rate cuts. So we should be, you know, okay from that perspective. You know, again, our investment strategy is in very safe assets. Like, our insurance assets, which represent a big chunk of our AED land, are largely investment-based. And the rest of our portfolio, generally speaking, is in the capital structure. So we feel like we don't know what's going to happen in the next 12, 18 months. But we feel like our business is relatively inflated from it. And the last thing I'd say is, you know, our revenue streams largely are, you know, relatively consistent. So we don't generate a lot of incentive fees. We don't generate a lot of market-based performance fees. And so, again, our SRE should be relatively insulated from changes in, you know, from key changes.

Yeah, that's reassuring to hear. Thanks again for the call. I will pass the line.

Thank you.

As a reminder, if you would like to ask a question today, please do so now by pressing Start, followed by the number 1 on your telephone keypad. At this time, we have no further questions, and so I'll turn the call back to the management team for any closing comments.

Thank you, everyone, for your time today. As always, we're happy to make ourselves available for any questions you may have on the business. We look forward to speaking with you to recap Q3 2025 calls in November. And as we hope, you guys all have a great end of summer and a great weekend. Thank you.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.