Mount Logan Capital Inc. Announces Third Quarter 2024 Financial Results
Generated $10.7 million of insurance segment Spread Related Earnings ("SRE") for the trailing twelve months ended September 30, 2024, a substantial increase over the prior year period, demonstrating the earnings power of the insurance segment
Solid quarter for the asset management segment, earning $3.6 million in management and incentive fees, an increase of 41% over the prior year period. Achieved Fee Related Earnings ("FRE") of $1.6 million for the quarter, up 126% as compared to third quarter 2023, and $7.5 million for the trailing twelve month period, a 37% increase compared to the prior year period
During October, Mount Logan announced it, alongside BCP Partners Credit, will be acquiring Runway Growth Capital LLC, a $1.4 billion AUM private credit asset manager. Mount Logan will be participating in the transaction through a minority stake purchase via an issuance of common shares of Mount Logan
TORONTO, Nov. 07, 2024 (GLOBE NEWSWIRE) -- Mount Logan Capital Inc. (Cboe Canada: MLC) ("Mount Logan" or the "Company") announced today its financial results for the quarter ended September 30, 2024. All amounts are stated in United States dollars, unless otherwise indicated.
Third Quarter 2024 Highlights
Total revenue for the asset management segment of the Company of $3.8 million, an increase of $0.6 million, or 20%, as compared to the third quarter of 2023. The increase is primarily due to growth in fees attributable to the increase in Opportunistic Credit Interval Fund ("SOFIX"), CLOs and sub-advisory fees. Third quarter asset management revenues exclude $1.5 million of management fees associated with Mount Logan's management of the assets of Ability Insurance Company ("Ability"), a wholly-owned subsidiary of the Company, during the third quarter of 2024. These Ability management fees represent an increase of $0.4 million, or 35% as compared to third quarter 2023 of $1.1 million.
Total net investment income for the insurance segment was $23.7 million for the three months ended September 30, 2024, a decrease of $2.5 million, or 10%, as compared to the third quarter of 2023, driven primarily by the write-off of $1.1 million of accrued investment income. Excluding the funds withheld under reinsurance contracts and Modco, insurance segment's net investment income was $13.5 million, a decrease of $1.7 million, or 11%, as compared to the third quarter of 2023.
8.3%1 yield on the insurance investment portfolio as of September 30, 2024, due to ongoing portfolio and capital optimization across the insurance solutions portfolio alongside the benefit of higher base rates. Excluding the funds withheld under reinsurance contracts and Modco, the yield was 8.7%.
Ability's total assets managed by Mount Logan increased to $628.5 million as of September 30, 2024, up $218.9 million from third quarter 2023 of $409.6 million. As of September 30, 2024, the insurance segment included $1.1 billion in total investment assets, up $93.8 million or 10% from third quarter 2023 investment assets of $1.0 billion.
Book value of the insurance segment as of September 30, 2024 was $73.7 million, an increase of $8.6 million as compared to $65.1 million for third quarter 2023, driven by higher insurance net income.
SRE for the insurance segment increased to $10.7 million for the trailing twelve months ended September 30, 2024, up $9.7 million from trailing twelve months ended September 30, 2023 of $1.0 million primarily driven by an increase in net investment income, lower cost of funds and lower operating expenses. SRE is a non-IFRS financial measure used to assess the insurance segment's generation of profits excluding the impact of certain market volatility and other one-time, non-core components of insurance segment income (loss). The Company believes this measure is useful to shareholders as it provides additional insight into the underlying economics of the insurance segment.
FRE for the asset management segment was $1.6 million for the three months ended September 30, 2024, an increase of 126% compared to third quarter 2023. FRE was $7.5 million for the trailing twelve months ended September 30, 2024, an increase of $2.0 million, or 37%, compared to the trailing twelve months ended September 30, 2023 of $5.5 million primarily driven by growth in fees across Ability, CLOs, Ovation, SOFIX and sub-advisory fees.
Mount Logan announced the hiring of Scott Chan, previously a Managing Director at Canaccord Genuity, to expand its Canadian and Investor Relations presence.
Subsequent Events
Declared a shareholder distribution in the amount of C$0.02 per common share for the quarter ended September 30, 2024, payable on November 29, 2024 to shareholders of record at the close of business on November 22, 2024. This cash dividend marks the twenty-first consecutive quarter of the Company issuing a C$0.02 distribution to its shareholders. This dividend is designated by the Company as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial or territorial legislation. An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents.
Announced Mount Logan has agreed to purchase a minority stake in Runway Growth Capital LLC ("Runway"), an SEC registered investment adviser, managing approximately $1.4 billion in private credit assets. Mount Logan is acquiring the minority stake alongside BC Partners Credit, who is acquiring the majority stake in the platform. There will be no change to Runway's management team or day-to-day operations following close of the transaction. The closing of the transaction, which is expected to occur in the fourth quarter of 2024, is subject to customary closing conditions, including approval of the new investment advisory agreement with Runway by Runway Growth Finance's stockholders and the approval of the Cboe for the issuance of common shares of the Company to the selling members of Runway.
Management Commentary
Ted Goldthorpe, Chief Executive Officer and Chairman of Mount Logan stated, "We are excited to announce our third quarter 2024 results, which demonstrate the earnings power of both our asset management and insurance segments. Fee Related Earnings, or FRE, of the asset management segment was up significantly year-over-year and highlights the growing profitability of our asset management business. Additionally, our Spread Related Earnings, or SRE, highlights the continued profitability of our insurance segment. The integration of our businesses and focus on profitability are driving consistent improvements in operating performance, while we focus on creating scale through organic and inorganic growth initiatives, which includes the recent Runway announcement."
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1The yield is calculated based on the net investment income excluding reinsured portfolio income less management fees paid to Mount Logan divided by the average of investments in financial assets for the current and prior period, and then is annualized.
Selected Financial Highlights
Total Capital of the Company was $132 million as at September 30, 2024, an increase of $2.1 million as compared to December 31, 2023. Total capital consists of debt obligations and total shareholders' equity.
Consolidated net income (loss) before taxes was $(17.4 million) for the three months ended September 30, 2024, a decrease of $33.6 million from $16.2 million for third quarter 2023. The decrease was primarily attributable to the increase in net insurance finance expenses resulting from significant decreases in risk-adjusted market interest rates. This decrease was partially offset by revenue growth in both asset management and insurance segments. Asset management revenue increased due to higher management fees, and improvement in insurance segment revenue resulting from better insurance service results and higher net gains from investment activities. Additionally, the decrease was also offset by reduced administrative expenses under the Insurance segment.
Basic Earnings per share ("EPS") was $(0.68) for the three months ended September 30, 2024, a decrease of $1.30 from $0.62 for the third quarter 2023.
Adjusted basic EPS was $(0.67) for the third quarter 2024, a decrease of $1.35 from $0.68 for the third quarter 2023.
Results of Operations by Segment
($ in Thousands)
Three Months Ended
Nine Months Ended
September 30, 2024
June 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Reported Results (1)
Asset management
Revenue
$
3,826
$
3,394
$
3,186
$
11,250
$
8,108
Expenses
7,481
6,651
6,868
21,747
18,841
Net income (loss) - asset management
(3,655
)
(3,257
)
(3,682
)
(10,497
)
(10,733
)
Insurance
Revenue (2)
31,476
15,746
18,443
64,777
38,296
Expenses
45,199
8,642
(1,482
)
54,663
41,410
Net income (loss) - insurance
(13,723
)
7,104
19,925
10,114
(3,114
)
Income before income taxes
(17,378
)
3,847
16,243
(383
)
(13,847
)
Provision for income taxes
(266
)
(265
)
(331
)
(587
)
(348
)
Net income (loss)
$
(17,644
)
$
3,582
$
15,912
$
(970
)
$
(14,195
)
Basic EPS
$
(0.68
)
$
0.14
$
0.62
$
(0.04
)
$
(0.61
)
Diluted EPS
$
(0.68
)
$
0.14
$
0.61
$
(0.04
)
$
(0.61
)
Adjusting Items
Asset management
Transaction costs (3)
(2
)
—
(872
)
(253
)
(2,308
)
Acquisition integration costs (4)
—
—
(375
)
(250
)
(1,125
)
Non-cash items (5)
(346
)
(346
)
(139
)
(1,038
)
(419
)
Impact of adjusting items on expenses
(348
)
(346
)
(1,386
)
(1,541
)
(3,852
)
Adjusted Results
Asset management
Revenue
$
3,826
$
3,394
$
3,186
$
11,250
$
8,108
Expenses
7,133
6,305
5,482
20,206
14,989
Net income (loss) - asset management
(3,307
)
(2,911
)
(2,296
)
(8,956
)
(6,881
)
Income before income taxes
(17,030
)
4,193
17,629
1,158
(9,995
)
Provision for income taxes
(266
)
(265
)
(331
)
(587
)
(348
)
Net income (loss)
$
(17,296
)
$
3,928
$
17,298
$
571
$
(10,343
)
Basic EPS
$
(0.67
)
$
0.15
$
0.68
$
0.02
$
(0.44
)
Diluted EPS
$
(0.67
)
$
0.15
$
0.67
$
0.02
$
(0.44
)
(1) Certain comparative figures have been reclassified to conform with the current year's presentation, including the reclassification of "Net realized and unrealized gain (loss)" to "Revenue"(2) Insurance Revenue line item is presented net of insurance service expenses and net expenses from reinsurance contracts held.(3) Transaction costs are related to business acquisitions and strategic initiatives transacted by the Company.(4) Acquisition integration costs are consulting and administration services fees related to integrating a business into the Company. Acquisition integration costs are recorded in general, administrative and other expenses.(5) Non-cash items include amortization of acquisition-related intangible assets and impairment of goodwill, if any.
Asset Management
Total Revenue, Asset Management
($ in Thousands)
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Management and incentive fee
$
3,576
$
2,531
$
10,902
$
5,914
Equity investment earning
74
221
241
1,141
Interest income
274
274
817
813
Dividend income
71
166
296
331
Net gains (losses) from investment activities
(169
)
(6
)
(1,006
)
(91
)
Total revenue, asset management
$
3,826
$
3,186
$
11,250
$
8,108
Quarter Ended Fee Related Earnings ("FRE")
FRE is a non-IFRS financial measure used to assess the asset management segment's generation of profits from revenues that are measured and received on a recurring basis and are not dependent on future realization events. The Company calculates FRE, and reconciles FRE to net income from its asset management activities, as follows:
($ in Thousands)
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Net income (loss) and comprehensive income (loss)
$
(17,644
)
$
15,912
$
(970
)
$
(14,195
)
Adjustment to net income (loss) and comprehensive income (loss):
Total revenue - insurance (1)
(31,476
)
(18,443
)
(64,777
)
(38,296
)
Total expenses - insurance
45,199
(1,482
)
54,663
41,410
Net income - asset management (2)
(3,921
)
(4,013
)
$
(11,084
)
$
(11,081
)
Adjustments to non-fee generating asset management business and other recurring revenue stream:
Management fee from Ability
1,501
1,110
4,459
2,902
Interest income
—
—
(1
)
—
Dividend income
(71
)
(166
)
(296
)
(331
)
Net gains (losses) from investment activities
169
6
1,006
91
Administration and servicing fees
451
215
1,246
702
Transaction costs
2
872
253
2,308
Amortization of intangible assets
346
139
1,038
419
Interest and other credit facility expenses
1,664
1,555
5,027
4,212
General, administrative and other
1,501
1,009
3,239
4,387
Fee Related Earnings
$
