Prepared remarks
Good morning, ladies and gentlemen. And thank you for standing by. Welcome to Mount Logan Capital Second Quarter 26 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 relate 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 risks 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 $900 thousand from the first quarter of 2026 and up $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 BBB- long-term issuer credit rating from AM Best, which was a process spanning several quarters and is 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 multiyear guaranteed annuity products on its flagship Reliability brand, marking our ability to enter 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. 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 long standing 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 we believe performance within the vehicles we manage reflects that. Within Insurance Solutions, the investment portfolio generated a yield of 6.2% during the second quarter, or 6.6% excluding funds withheld and Modco assets. Spread related earnings increased by $900 thousand sequentially to $2.9 million. The improvement was driven primarily by a favorable Guardian reserve assumption update and lower all-in cost of funds. Opportunistic credit interval fund SOFIX generated a return of 8% over the trailing 12 months ended 06/30/2026, and 2.5% year to date. SOFIX 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 such 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 nonaccruals 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 lien senior secured loans and a weighted average yield of 12% excluding nonaccruals 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 sit several hundred basis points wide of the broader single-B rated loan index, reflecting sector-specific sentiment around AI disruption rather than broad-based credit deterioration. Software exposure across our managed portfolios remains concentrated in mission-critical vertically specialized businesses with proprietary data-embedded workflows, high switching costs, and first-lien seniority. 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 are 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 am 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 fee related earnings annually to Mount Logan, representing approximately 30% growth over our 2025 run-rate 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 are 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 have 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 assets under management, and support growth in 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 rating underscores the strength of Ability's financial profile and reflects the significant capital we have invested since we acquired it in 2021. We believe AM Best's rating is key to unlocking the full earnings potential of our platform and supports future distribution of Ability's insurance products. On 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 multiyear guaranteed annuity products available in three, five, seven, and ten-year terms. To support this distribution, Ability is partnered with one of the nation's leading independent marketing organizations and is initially able to write across our existing multistate license footprint with plans to expand into additional states over the coming quarters. Direct 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 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's investment portfolio. 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. All 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's 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 their financial impacts becoming more meaningful in 2027. With that, I will turn the call to Brandon who will walk through our financial results in more detail.
Thanks, Ted. Good morning, everyone. In 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 noncore legacy fee vehicles, including the Ovation alternative income fund and our Mount Logan managed CLOs. Importantly, we are beginning to replace legacy revenues from noncore 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, 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 high-grading 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, 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 noncore vehicles. Additionally, we did not earn advisory or transaction fees during the quarter compared with approximately $100 thousand 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 28th consecutive quarter dividend track record. Looking ahead, expense discipline and operational efficiency remain priorities across the platform. More specifically, our priorities remain prudent and disciplined expense management, driving operational excellence, continued growth in recurring fee related earnings, and increasing the contribution from insurance solutions to Mount Logan's P&L. Several of the initiatives Ted discussed are just beginning to or have not 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 a 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.
Questions and answers
Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, press 11 again. Our first question will come from the line of Matthew Lee with Canaccord Genuity. Your line is open.
Hi there. Thanks for taking my call. I have a couple of quick questions. I guess the first one would be 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, is M&A still a big priority for you guys? Thanks.
Thanks, Matt. Yes. I would 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 write for Ability, which we just launched today, you will begin to see some ceding commissions as well as growth in AUM. We really spent the last six to nine months in an 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 are two things going on. Some very large managers are exiting smaller vehicles, particularly public vehicles, just because it is a distraction for their core franchise. And the second thing is smaller managers are 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 six to twelve months.
Okay. That is great. Thanks.
Thank you.
One moment for our next question. Our next question will come from the line of Ben Brockhoff with Lucid Capital Markets. Line is open.
Hey, guys. Good morning. Just a follow-up on the Yieldstreet transaction. Are there any other regulatory or other approvals required for the deal to close?
No, we got through the SEC process and we have now got the shareholder vote. So it was just a matter of getting it closed.
Okay, great. And then another follow-up on the M&A conversation. What is 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?
I would say it is multifold. We are in constant dialogue with a lot of our peers around doing things together, so a lot of it is social productive sourcing. We have been a big consolidator in the middle market, the lower to middle market, and we typically get introduced to a lot of people who are looking for strategic alternatives. So it is a combination of people knowing that we are an acquirer—given we have been the biggest acquirer in our space—and the fact that we are in constant proactive dialogue with a lot of people.
Got it. Okay. Thanks. And then switching to the insurance side. Congrats on the rollout of Reliability. As you ramp directly writing policies, is your intent to eventually replace the policies you have reinsured with the ones that you are directly writing and then, longer term, do you have plans to expand the product set beyond the MYGAs?
Good question. On the first part, direct writing lets you control your own destiny a bit better in terms of predictability around flows, and, theoretically, we should be able to source liabilities for cheaper, which is super accretive for ROE and that's why it is so important to us. We are not going to stop reinsuring other people's policies because it diversifies our funding sources and can still be economic for us. So I think we will continue to do both. On the second question, the answer is yes in the sense that the market continues to evolve and the annuity space is very competitive. We have had to be thoughtful on the asset side because liability costs have been elevated versus history. I would not be surprised to see us do other products, but our goal is to take risk on the asset side, not the liability side. So minimal insurance risk and prefer to make or break ourselves on the investment side. I would add that direct writing opens all of those doors; we will certainly look at and consider other products—FIAs, RILAs, etc.—to the extent they work for our current cost of capital. Direct writing is the panacea; now that we can directly distribute insurance through our third-party marketing organization, we can sell the full suite of insurance products the market is looking for.
And last one for me, maybe this is for Brandon on fee related earnings. Was there any specific driver to the quarter-over-quarter increase in other fee related income? So that is our profit share interest. Is it largely driven by incentive fees? Yes, that is largely driven by incentive fees, which can ebb and flow. This quarter there was a true-up from the prior quarter that flowed through the current period. It was not anything particular beyond that; it was a couple hundred thousand dollars—over $200 thousand, I believe.
Okay, great. That is all for me today. Thanks, guys.
Thank you.
As a reminder, if you would like to ask a question, please press 11. Our next question will come from the line of Charles Burns with CIBC. Your line is open.
Good morning, Ted. Good to hear the update this morning. 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?
Yes. It does a couple things. One, it allows us to control flows better so we can take in flows as we see investment opportunities evolve—ramp up and down. It gives flexibility around pricing and also allows us to look at new products like preneed and some other things we've been considering. Basically, expand our product set versus just taking what the market gives us. We think practically it will lead to cheaper liabilities. Insurance has embedded leverage in the model—small savings in liabilities lead to big changes in ROE—so we are hoping this drives AUM and ROE for us.
Okay. Second question: why is direct writing more economic than reinsurance?
When we reinsure from another provider we typically pay them a ceding commission, so we pay someone to originate for us. When we originate ourselves, origination costs are generally lower. We are using a third party to distribute our products, so we have an economic arrangement with them, and it tends to be more economic from a ceding perspective than pure reinsurance. In short, you share less and keep more of the economics when you originate directly.
I guess that is the bottom line. And one final thing: asset managers have had a rough go in 2026, but recently there has been a reasonable rebound. Why do you think Mount Logan stock has lagged relative to these other asset managers recently?
Generally, when there is a rebound, the larger, most liquid asset managers rebound first and the smaller or less liquid names get dragged up later. So the big guys rally first and then others follow. I believe our stock does not reflect fair market value; I bought stock last quarter and I will buy stock this quarter as well. We will keep buying until the price reflects fair market value.
Okay. And the interest rate backdrop: rates are more or less on hold—are current interest rates positive or negative for you?
It is definitely positive. We are levered to short-term rates and most of our assets are floating-rate, so higher rates let us make more money. We generally pay a mixture of fixed and floating on our liabilities, so higher is better for us as long as it doesn't cause credit deterioration. Credit is still pretty benign, so higher for longer is good.
Okay. Thanks very much.
Thank you.
One moment for our next question. Our next question will come from the line of Jonathan Ross Schild. Your line is open.
Hi. I would 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?
I take all of my compensation in stock as does most of the management team. The way it works is BCP, which provides a lot of the support for the vehicle, gets a basis point fee, but it is a very below-market fee really just to cover costs. We do not take cash comp; we are aligned with shareholders and receive RSUs in stock.
Do you have incentive options, or is it based on spread and profitability? Is it commission-based compensation? What is the structure?
It is all in our proxy. We do not get paid in options or commissions. It is generally stock grants that vest over time with service-based vesting conditions, so time-based vesting as long as we are still here. We do not take cash comp.
And in the last call, you said you were not able to tap the $10 million buyback. Is that calendar changing in any way?
No. It is always something we consider and weigh versus buying stock personally and buying stock in our funds and everything else. We are committed to investing in the stock price at these levels.
Thank you.
Thanks. Thank you.
One moment for our next question. That will come from the line of Matthew Lee with Canaccord Genuity. Your line is open.
Thanks, operator. Sorry we had some difficulty queuing our questions. I am filling in for Matt. A couple of questions. First, on FRE: it 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?
I would say all of the above. Q2 FRE increased to $1.4 million from $1.2 million in the prior quarter. There is considerably more work to do as we continue to execute on our strategic initiatives and scale the business. We need to grow our fee-earning AUM, high-grade our portfolios to optimize earnings, and maintain expense discipline—scale is paramount.
That is helpful. Second 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 the going-forward claim base.
Long term, it is critical that we grow the insurance business and decrease the attribution to SRE from our legacy long-term care book, which is where the volatility comes from. In the quarter, there was about a net $600 to $700 thousand benefit to SRE from the Guardian assumption update, offset by other nonrecurring items. The assumption update relates to insurance risk we hold today from legacy long-term care blocks. The goal is to continue to minimize their significance to our overall P&L.
Great. Thank you. That is very helpful.
Thank you.
I am 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 are 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.