Earnings call transcript: Mount Logan Capital sees asset growth in Q4 2024

Mount Logan Capital (NLC) reported strong asset growth in the fourth quarter of 2024, reflecting a strategic focus on diversification and market expansion. The firm highlighted an increase in asset management revenue and significant developments in product innovation and operational strategy. This performance has been reflected in the company's stock price, which has delivered an impressive 80.29% return over the past year, according to InvestingPro 's comprehensive research reports, available for over 1,400 US stocks. Additionally, the firm is building a pipeline for mergers and acquisitions to further strengthen its market position.

Executive Commentary

CEO Ted Goldthorpe emphasized the company's progress towards becoming a fully diversified credit solutions provider, stating, "We are closer to our stated vision of becoming a fully diversified one-stop credit solutions provider." Jordan Mangum from the Mount Logan team highlighted the growth potential of the opportunistic credit interval fund, saying, "We still view [opportunistic credit interval fund] as a very high growth fund for us."

Risks and Challenges

• Market volatility could impact asset valuations and investment performance.
• Regulatory changes in financial markets may affect operational strategies.
• Integration challenges from mergers and acquisitions could pose risks.
• Competition in the private credit market may pressure margins.
• Economic uncertainties could influence investor sentiment and capital flows.

Mount Logan Capital's strategic initiatives and strong financial performance in Q4 2024 underscore its potential for growth in the evolving credit market. As the company continues to diversify its offerings and expand its market reach, it remains well-positioned to capitalize on emerging opportunities in the financial sector.

Full transcript - Millennium & Copthorne Hotels (MLC) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Mount Logan Capital's Fourth Quarter and Full Year twenty twenty four Results Conference Call. Before we begin, I'd like to remind listeners that except for historical information, the matters discussed during this call may include forward looking statements within the meaning of the applicable Canadian securities legislation. Forward looking statements involve known and unknown risks and uncertainties and other factors that may cause actual financial results, performance or achievements to be materially different from estimated future results, performance or achievements expressed on Slide by those forward looking statements. All forward looking statements reflect the company's current views with respect to future events and are subject to risks and uncertainties and assumptions we have made in drawing the conclusion included in such forward looking statements.

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The company is not obligated to update or revise any forward looking statements, and we do not assume any obligation to do so. For a description of the risks associated with Mount Logan Capital's business, as well as information about the material factors and assumptions that could cause results to differ from any forward looking statements and other relevant factors, please refer to the company's public disclosure record, particularly the company's MD and A and annual information form for the year ended 12/31/2024, which are available on SEDAR. I would now like to introduce your host for today's conference, Mr. Ted Goldthorpe, Chairman and Chief Executive Officer of Mount Logan Capital. Mr.

Goldthorpe, you may begin.

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Thank you, and good morning, everyone. We appreciate you joining us for the fourth quarter and full year twenty twenty four results call. During the call, we will refer to information provided in the fourth quarter and full year twenty twenty four press release, MD and A, consolidated financial statements and annual information form, all of which were released Thursday evening and are available on our website and SEDAR. Joining me this morning to discuss our results and outlook for the business is our Chief Financial Officer, Nikita Claussen our Co Presidents Matias Ederer and 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 unless otherwise stated. Overall, the fourth quarter and full year 2024 saw strong financial performance and growth across our key business segments, and we are excited to review our performance with you today. We are also pleased to announce that we will be paying our twenty second consecutive quarterly dividend, which will consist of CAD 0.02 per share for shareholders of record as of 04/03/2025. Our team has been hard at work through 2024, subsequently through today, executing on several key strategic initiatives.

In December, we successfully expanded our corporate credit facility, enhancing our capacity to drive growth across our core asset management and insurance segments, while introducing a pricing step down mechanism. During the first weeks of January, we announced a transformative all stock combination with one hundred and eighty Degree Capital. The announced combination, which remains subject to regulatory and shareholder approvals, provides now Logan access to a team with a long standing track record of investing in public companies, which will help expand our product credit investment capabilities into the public markets, which we believe is a high growth area for our asset management business. The combined pro form a balance sheet will also position Mount Logan to capitalize on a solid pipeline of organic and other M and A opportunities. Both shareholder bases are expected to benefit from a larger company and improved stock liquidity from an increased public flow.

Pro form a for the combination, the company will continue to operate under the Mount Logan banner as it expected to be listed on the NASDAQ transitioning from the CBOE Canada. Upon expected close, we anticipate continue to act as the Chief Executive Officer of the combined business. Subsequently in January, we announced the completion of our previously announced minority investment in Runway Growth Capital alongside BC Partners Credit. We aim to leverage Runway's capabilities to expand our credit investment expertise into growth and venture lending. We expect the partnership will unlock additional opportunities for Mount Logan to develop new products and drive additional organic growth.

Transactions with one hundred and eighty Capital and Runway bring us one step closer to our stated goal, becoming a fully diversified one stop credit manager. Last quarter, we highlighted initiatives to improve our liquidity in our shares. These efforts are yielding positive results as fourth quarter average daily trading volumes in NLC shares increased meaningfully quarter over quarter. In early February, Canaccord Genuity initiated research coverage on Mt. Logan Capital, which serves benefits including access to an institutional clientele as they continue to grow in the marketplace.

We continue to see strong consolidation trends among private credit asset managers at premium valuations. Management continues to believe that our current share price does not reflect the immense work our team has done to scale our business, particularly through our strategic transactions that support our key profitability metrics. We believe the implied valuation of our stock trades at a significant discount to large cap current asset management peers even before considering the incremental value attributable to a regulated insurance business ability. Before we provide a more detailed discussion of our fourth quarter and full year financial results, I first want to highlight the strong growth we continue to see across our business as well as increased efficiency and effectiveness of our team. We saw organic growth across two key business segments, primarily measured by a fee related earnings or FRE for the asset management segment and spread related earnings or SRE for the insurance segment, both which both were up quarter over quarter and year over year.

2024, Mount Logan achieved an FRE of $7,500,000 on the asset management business consistent with the range we previously disclosed to the market in January of twenty twenty five. And SRE demonstrated sustained growth relative to 2023 at $15,300,000 driven by an increase in net investment income and lower cost of funds and operating expenses. From a financial results perspective, both segments saw top line growth year over year. Our Asset Management segment achieved another strong quarter from a top line and fee related earnings perspective and our Insurance segment asset growth and active deployment and management of capital contributed to an increase in total insurance assets. Bility's total assets managed by Mt.

Logan were $620,000,000 representing approximately 62% of Bility's total investment assets of $1,100,000,000 Now Logan will continue to support growth across our insurance and asset management verticals. Our asset management segment, which encompasses our retail and institutional targeted businesses, generated $4,400,000 in revenues during the fourth quarter, an increase of 19% year over year. We note this figure excludes $1,200,000 of management fees generated under our management agreement with ABILITY. On the retail side, our two interval funds, SOPHEX and AltZip continue to capitalize on the growing demand for private credit in the retail markets. We remain committed to the retail distribution channel and are working hard to increase retail inflows into our credit interval funds.

CapEx, the opportunistic credit interval fund we launched and managed, experienced another quarter of growth, resulting in a 10% increase in net assets as compared to the prior quarter. Net assets for the quarter of December 31 were approximately $159,000,000 We expect SOPHEC's impressive track record of performance, approximately 46% cumulative inception to date and 2% year to date through March 6. Plus, its 9.2% annualized dividend will support the fundraising momentum for this differentiated private credit product. Our sales force remains focused on growing SOFIXX and ALT SIF. ALT SIF, our other credit oriented interval fund, had total net assets at quarter end of approximately $217,000,000 Malogan Management's specialty finance oriented vehicle, the alternative income fund, finished the year with approximately $2.00 $1,000,000 in assets under management.

During the third quarter, we elected to begin the process of an orderly liquidation of the fund's assets and will continue our efforts to generate attractive returns for investors during this period. In the fourth quarter, the alternative income fund net returns were approximately 3% and closed 2024 with strong performance of 9.4. We believe our specialty finance strategy and are actively evaluating new paths for leveraging our team to drive value for shareholders. On the institutional side, our BDC and CLO funds represented approximately $1,200,000,000 of assets at the end of the quarter and continue to provide predictability in Mount Logan's top line due to the stable nature of fees generated on the permanent and semi permanent capital base. Logan Ridge achieved its tenth consecutive quarter of positive NII.

As of quarter end, Logan Ridge had a total asset base of approximately 187,000,000 Mount Logan maintains its exposure to its second BDC, Portman Ridge, for its minority interest in Portman Ridge's investment advisor, Sierra Crest. Portman Ridge finished the quarter with approximately $425,000,000 in total assets and the management contract continues to provide consistent quarterly cash distributions to Mount Logan. On January 30, we announced the boards of both our listed PDCs, Portman Ridge and Logan Ridge, unanimously approved the combination of the two vehicles. The combined company is expected to have total assets in excess of $600,000,000 The merger is expected to provide several benefits, including lowering operating expenses and potentially greater access to more diverse sources of financing at a lower cost. The management team's extensive experience with BDC acquisitions and the recent transaction with Runway position us well for the future.

On the CLO side, AUM for the quarter was approximately $572,000,000 In the fourth quarter of twenty twenty three, the revenue share associated with our management of the CLOs increased from 30% to 100%, which drove increased revenues in each quarter year to date and has supported increased asset management revenues during 2024 relative to 2023. Lastly, our key sub advisory relationship with $87,000,000 in NAV. In 2024, this relationship has been a profitable venture for our team. We continue to evaluate other sub advisory relationships to increase AUM and management fees. The insurance business remains highly strategic to Mount Logan and is a priority for our team.

We're actively deploying capital and managing investments with attractive risk adjusted returns across the credit spectrum. On the liability side, we believe our annuity reinsurance business is optimal in the current environment. Annuity policies we reinsure contain surrender charges, which protect ability from earlier than expected policyholder withdraws. As we look to reinsure more annuities, we believe the overall risk profile of our liability base decreases as our legacy insurance portfolio becomes a smaller piece of the overall business. Before turning the call over to Nikita, I did want to spend a moment to reinforce our excitement around the prospects of the business.

Shareholders are benefiting from the organic growth across each of our key business segments, which is evident in the FRE and SRE expansion during the twelve month period of 2024. Our team remains focused on streamlining our business, improving efficiencies and increasing AUM through our retail and insurance distribution channels. While we are focused on the announced one hundred and eighty Degree Capital transaction and a number of other internal initiatives, we continue to build an active M and A pipeline as we remain focused on increasing investment into our key business segments to expand our investment, distribution and insurance capabilities. With that, I will hand the call over to Nikkita, who will review the financial results for the quarter.

Nikita Claussen, Chief Financial Officer, Mount Logan Capital: Thanks, Ted. Good morning, everyone. I will now summarize our key highlights of the fourth quarter of twenty twenty four. As a reminder, all figures referenced on today's call will be in U. S.

Dollars, Mount Logan's functional and presentation currency. For our Asset Management segment in the fourth quarter twenty twenty four, we generated $4,400,000 of revenue. Breaking down our asset management revenue further, the alternative income fund generated approximately $1,300,000 in management and incentive fees. Our CLOs generated approximately $779,000 in management fees for the quarter, while SOPHEX, our interval fund generated $947,000 in management and incentives. The net loss related to AltFIF, which is recorded within administrative and servicing fees, was approximately $595,000 for the quarter.

With regards to our BDCs, Slogan Ridge generated approximately $834,000 in management fees and we recognized a $439,000 gain on our minority interest in Sierra Crest, which manages Portman Ridge. These combined results contributed to revenues increasing by 16% quarter over quarter. For the Asset Management segment on the expense side, for the quarter ended December 31, we incurred approximately $13,400,000 in operating expenses. This includes $3,500,000 of corporate overhead expenses. Asset management expenses increased 80% quarter over quarter, primarily due to increased one time expenses for transaction costs incurred in advance of the Runway acquisition and Tern merger, as well as the impairment on the Ovation Investment Management agreement and the corporate credit facility upside.

For the quarter ended December 31, Mt. Logan incurred $3,900,000 in interest and credit facility expenses, which relate to our corporate credit facility and debenture units. Our interest expense remained flat quarter over quarter as the pay downs on the corporate facility were offset by growing paid in kind interest on the debenture unit. FRE earnings were $7,500,000 for the twelve months ended 12/31/2024, an increase of $2,000,000 compared to the twelve months ended 2023. FRE increased significantly year over year due to growth in fees across managed vehicles, partially offset by higher expenses associated with the operations of Ovation as 2024 incorporates a full year of Ovation operations versus 2023, which only includes six months of operation.

Moving on to our insurance business. Insurance service results were consistent quarter over quarter, while total revenue for the insurance business in the current quarter decreased by $32,100,000 compared to the prior quarter as the investment portfolio declined due to higher treasury yields during the quarter. The growth decrease was offset by $12,400,000 relating to the collateral held under the Front Street recontract, which is referred to as the realized and unrealized loss on embedded derivatives within the statement of comprehensive income. Total expenses for the insurance business in the current quarter decreased by $61,300,000 compared to prior quarter. The decrease in expenses was attributable to higher treasury yields this quarter, which resulted in lower insurance finance expenses, $59,200,000 compared to prior quarter.

Additionally, expenses decreased by $1,600,000 due to increased unrealized losses held by the company under the Modco agreement with Vista, which is recorded as a decrease in reinsurance assets. Furthermore, there was a $500,000 reduction in G and A expenses due to lower recorded compensation costs, legal and consulting costs. Some of these costs we do expect to be temporary in nature. Overall, spread related earnings was $15,300,000 for the twelve months ended 12/31/2024, an increase of $17,000,000 compared to the twelve months ended 12/31/2023. SRE increased significantly year over year due to increased investment income, lower cost of funds and lower operating expenses.

Mount Logan reported basic and diluted earnings per share of $0.22 and $0.2 respectively for the 2024 fiscal year. This is compared to basic and diluted loss per share of $0.69 for the 2023 fiscal year. The increase in earnings per share in 2024 primarily resulted from an improvement in insurance service results, increased net investment income, decreased in net insurance finance expenses and decreased in general, admin and other expenses in the Insurance segment. The increase in EPS was partially offset by an increase in net losses from investment activities in the Insurance segment due to increases in bond yields, which resulted in higher unrealized losses in 2024 when compared to 2023. As of 12/31/2024, Mount Logan's balance sheet reflected total assets of $1,690,000,000 total liabilities of $1,630,000,000 and shareholders' equity of $57,200,000 The increase in shareholders' equity from the third quarter was due to favorable net income.

On the asset management side of the balance sheet, total assets increased by 7% quarter over quarter to $63,600,000 This is primarily due to increased cash from the corporate credit facility upside. The increase in assets was partially offset by the $1,800,000 impairment charge reported in the fourth quarter for the Ovation IMA as the Fund's finite life was reduced. Investment balances also declined due to the continued redemption of shares in the company's investment in SoftEx during the quarter. Asset Management total liabilities increased 14.1% to $94,500,000 primarily driven by the $13,000,000 upsize in the corporate credit facility and accrued transaction costs, which are included as part of the accrued expenses. On the insurance side of the balance sheet, total assets decreased quarter over quarter by $81,400,000 or 4.8% to $1,630,000,000 The decrease in assets was primarily attributable to the decrease in reinsurance contract assets due to a decrease in the present value of the recoverable as higher discount rates were applied in Q4 as a result of higher treasury yields.

Additionally, the investment balances also decreased as a result of mark to market unrealized losses on bonds due to the increase in treasury yields. Cash and cash equivalents also decreased due to purchase of new investments, while these decreases were partially offset by increases in other assets due to unsettled trade. Our Insurance segment reported total liabilities of $1,540,000,000 representing a decrease of 95,800,000 from 09/30/2024. The decrease in liabilities was attributable to decrease in insurance contract liabilities of $87,600,000 as higher treasury yields led to lower present value of liabilities. Accrued expenses and other liabilities also decreased by 10,800,000 due to the settlement of payables related to investments purchased in the prior quarter, while the funds withheld liability also decreased by $4,100,000 due to unrealized losses on the investments held.

These decreases were partially offset by a $5,200,000 increase in the interest rate swap derivative and an increase of $1,900,000 in investment contract liabilities due to interest accretion on our MYGA deposits. Overall, the company is pleased with its financial performance for the fourth quarter of twenty twenty four, as evidenced by our strong FRE and FRE. I will now turn the call back to Ted for some closing remarks.

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Thanks Nikita. In closing, the foundation for our business' success has been built steadily over the last several years. And we are excited to enter our next phase of growth, the anticipating closing of our transformer of combination with one hundred and eighty Degree Capital. Combined with the closing of our minority investment runway growth, we are closer to our stated vision of becoming a fully diversified one stop credit solutions provider. We remain confident that our core pillars, asset management and insurance solutions, provide a stable foundation and a clear pathway for sustained growth.

Our group has been highly active since last quarter, breaking our pro form a balance sheet and building a robust pipeline of organic growth and M and A opportunities to carry our momentum into 2025. That concludes our prepared remarks. We will now transition the call to a Q and A session if the operator could coordinate.

Conference Operator: Thank you. Our first question for today comes from Betty Yang of Canaccord Genuity. Your line is now open. Please go ahead.

Betty Yang, Analyst, Canaccord Genuity: Hi, good morning. This is Betty on for Matt Lee. Thanks for taking my questions. So my first question is on the recent acquisition that you guys announced. Could you provide more detail on the acquisition of a minority stake eRAVI Group Capital?

Will this be integrated into an existing fund or will this operate as a standalone entity? And additionally, what is the expected contribution to fee revenue from this acquisition?

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Right. Okay. So I'll answer the first part of that and I'll turn it over to Nikita for the second part of it. So runway growth is a venture lending BDC and it brings us both financial accretion also strategic. It's very strategic for us.

So it is going to continue to operate as a stand alone company. So it's a publicly traded company on the NASDAQ, the ticker is RWAY. And it will continue to operate as a stand alone business, but obviously very, very integrated with the B. C. And Mount Logan infrastructure.

And I'll turn it over to Nikita for the earnings accretion.

Nikita Claussen, Chief Financial Officer, Mount Logan Capital: Sure. Thanks, Betty. For this investment, it will be treated similarly to our minority stake in SOPHEC. So we'll record some losses in our stake through the P and L as a minority interest, but we have strong outlook for the company.

Betty Yang, Analyst, Canaccord Genuity: Thanks for the answer. My other question is on the AUM growth by fund. You mentioned several funds that you're seeing very strong AUM growth. Is it possible to provide like a more detailed breakdown? Are there any particular funds where you see the most potential for further inflows in 2025?

Jordan Mangum, Team Member, Mount Logan Capital: Yes. I'm happy to answer. This is Jordan Mangum on the Mt. Logan team. I think 2025 as we really look out, I think two or four areas of AUM growth will be the opportunistic credit interval fund, which again if you look at its growth year over year from 2023 to 2024, it was 100% plus.

So I think that we still view that as a very high growth fund for us on the retail distribution side. And then the other area of growth continues to be the insurance solution side. We spent a lot of time last year working through these micro flow agreements that we had in place, and we're actively looking at new flow agreements to increase AUM on the insurance solution side. So I think when you look at the AUM growth, those are really going to be our two high growth verticals. And we'll certainly provide more detail to the market as we continue to realize that stated growth target.

Betty Yang, Analyst, Canaccord Genuity: Okay. Thanks. I'll pass the line.

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Thank you.

Conference Operator: Our next question comes from Francis Lao of Lucida Capital. Your line is now open. Please go ahead.

Jordan Mangum, Team Member, Mount Logan Capital: Hi, Ted. Good morning. I've got a question on some of the strategies up here. Given the public market valuation favors a lot more on the asset management FRE over the insurance FRE, Is your strategy to allocate even more capital or like a bias towards FRE growth?

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Yes, it's a very good question. So as you know, we get a bit of a double benefit when we put capital into our insurance business, because obviously we can lever that capital to prevent to basically generate SRV at our insurance company, but also FRV at our asset management company. On the asset management side, obviously we get a double benefit from our insurance business. Stepping apart from this, we're obviously continuing, as Jordan just alluded to, we're obviously growing our retail distribution channel as well. And those all should be a direct beneficiary to our FRE as well.

So we are investing in both businesses, but both businesses help FRE. John, as you mentioned, our stock really trades off of.

Jordan Mangum, Team Member, Mount Logan Capital: Right. And then you were talking about like in your prepared remarks, the Mount Logan stock is very heavily significantly discounted versus other alternative asset management companies and peers. Is there anything that you can sort of like highlight to investors so that people can better understand the story in the hopes of narrowing the gap versus the peer group here?

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Yes, it's a good question. I mean, this is why we're super excited about this 180 capital transaction. It'll get us on the NASDAQ, It'll give us a much larger market cap. We'll trade a little bit. We should trade more volume.

And we think one of the main reasons we trade at a discount is largely due to our size. So once we move off of the CBOE in Canada into the NASDAQ and obviously get an increased size, I think all of those factors I mentioned earlier, including broaden up in our investor base, a larger pump flow to more research coverage will obviously make our stock trade better.

Jordan Mangum, Team Member, Mount Logan Capital: And is that move coming maybe in Q2 or Q3? Like do you have the timing for that?

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Yes. I mean, we expect the vote to happen probably sometime at the end of the second quarter. So it will be either very end of the second quarter or early.

Jordan Mangum, Team Member, Mount Logan Capital: But you'll keep both listings, right?

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: We are probably just going to list in The U. S, but that's still something that we're contemplating. Okay. Thank you.

Conference Operator: Thank you. Our next question comes from Ben Drossman of Drossman Capital. Your line is now open. Please go ahead.

Ben Drossman, Analyst, Drossman Capital: Hey, guys. Thanks for taking my question. Had one on the one hundred and eighty acquisition. So I know there's a limited amount you can say because they haven't filed a proxy yet, but obviously as you mentioned there's a vote coming up. I think they need two thirds there.

I know there's an activist involved and I think there's tentatively an offer on the table that's at a higher percentage of NAV. Wanted to ask you guys what your view is on your conviction you have that two thirds vote will get there? And maybe from a probability basis, percentage chances you think that deal doesn't close and what your reaction would be in that scenario? Thanks.

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Yes, I mean, we still feel very confident. First of all, we think it's a really good deal for their shareholders. So let's just put that on the table. Number two is, obviously, we are aware that we are in discussions with a number of stakeholders around the transaction. But obviously, we feel pretty confident we're going to get the deal closed.

I don't want to give you probabilities because that's not really it would be like purely conjecture. I would say that, again, we feel pretty good we're going to get the deal done. And obviously, we're very open minded type in dialogue with all stakeholders.

Conference Operator: Okay. At this time, there are no further questions. So I'll hand back to your host to conclude today's conference.

Ted Goldthorpe, Chairman and Chief Executive Officer, Mount Logan Capital: Great. Well, thank you very much everyone for your time today. As always, the entire management team is happy to make ourselves available for any questions you may have on the business. We'll provide interim updates on key initiatives we're working on. We look forward to speaking with you to recap the first quarter results in May.

We hope you guys all have a great weekend. Thank you.

Conference Operator: Thank you all for joining today's call. You may now disconnect your lines.

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