Q1 2025 Ambac Financial Group Inc Earnings Call
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Speaker Change: Greetings and welcome to the Ambac Financial Group, Inc. First quarter 2025 earnings call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now.
My pleasure to turn the call over to Charles Pesky head of Investor Relations.
Speaker Change: Thank you good morning, and welcome to <unk> first quarter 2025 call to discuss financial results.
Speaking today will be Claude Leblanc, President and CEO, and David trick Chief Financial Officer.
Speaker Change: They will discuss the financial results of our business and the current market environment and after prepared remarks, we'll take your questions for those of you following along on the webcast. During the prepared remarks will be highlighting some slides from our investor presentation, which can be located on our website.
Speaker Change: Our call today includes forward looking statements the company cautions investors that any forward looking statement involves risks and uncertainties and is not a guarantee of future performance.
Speaker Change: Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.
Speaker Change: These factors are described under the forward looking statements in our earnings press release, and our most recent 10-Q and 10-K filed with the SEC.
Speaker Change: We do not undertake any obligation to update forward looking statements.
Speaker Change: Also in our prepared remarks or responses to questions. We may mention some non-GAAP financial measures.
Speaker Change: A reconciliation to those non-GAAP measures are included in our earnings press release operating supplement and other materials in the investors section on our website Ambac Dot com.
Speaker Change: I would now like to turn the call over to Mr. Claude Leblanc.
Claude LeBlanc: Thank you Chuck and welcome to everyone joining today's call.
Claude LeBlanc: Ambac insurance distribution and specialty program business got off to a very strong start in 2025.
Claude LeBlanc: Producing 318 million of premium up 70% and generating $63 million of revenue up 27% both from the prior period last year.
Claude LeBlanc: This growth was primarily attributable to our beat acquisition, which alone contributed over $20 million of revenue in the quarter.
Claude LeBlanc: Representing growth of approximately 40% from biggest results in the first quarter of 'twenty 'twenty four.
Claude LeBlanc: Looking at our distribution business segment cerrado generated over 230 million of premium for the quarter.
Claude LeBlanc: 156%.
Claude LeBlanc: We are starting 2025 with a much larger stable of startup mga's than anticipated due to the successful launch of six new M. G. As during 'twenty 'twenty four.
Claude LeBlanc: Which we believe will support strong organic growth into the future.
Claude LeBlanc: While we expect new M G as to attain profitability in 18 to 24 months on average.
Claude LeBlanc: Two of the six class a 'twenty 'twenty four startups achieved profitability in the first 12 months.
Claude LeBlanc: For the first quarter organic growth, excluding the beta acquisition had a bit of headwind contracting 2%.
Claude LeBlanc: Merrily driven by our pullback in E S L and short term medical business due to the continued industry turbulence, which we outlined last quarter.
Claude LeBlanc: Excluding our pullback in these two lines of business, our organic growth for the quarter would have been almost 12%.
Claude LeBlanc: I would also like to point out that these figures are measured on a subset of M. G. As given that we do not include organic growth for 12 months post an acquisition.
Claude LeBlanc: If feet had been included in the organic growth computation. This quarter, our consolidated organic growth would have been approximately 17% across all lines.
Claude LeBlanc: One of our key strategic tenants is maintaining profitable underwriting results for our capacity and capital providers throughout market cycles.
Claude LeBlanc: While the market has seen challenges in E. S. L. We believe market conditions are stabilizing and beginning to turn favorable for growth.
Claude LeBlanc: A&H lines of business are very diversified as a class are less correlated to the broader P&C market.
Claude LeBlanc: Which makes them an attractive revenue and earnings diversify our to our overall portfolio.
Claude LeBlanc: Beyond the MGA startups the other areas of focus that we believe will further materially enhance the organic growth of our platform include one.
Claude LeBlanc: Enhancement of risk capacity for our syndicates at our portfolio companies.
Claude LeBlanc: Two.
Claude LeBlanc: Product expansion and diversification.
Claude LeBlanc: Three distribution expansion to drive synergies across our platform.
Claude LeBlanc: Relative to some of our competitors, we have enormous white space to fill and in line with the growth. We have experienced to date, we see a lot of runway ahead of us for future growth whether that is in the form of organic inorganic.
Claude LeBlanc: <unk> expansion from within our portfolio.
Claude LeBlanc: In addition, we have a unique business model, which we believe positions us well to attract top industry talent to our platform well into the future.
Claude LeBlanc: Turning now to ever spans results for the quarter ever.
Claude LeBlanc: Never spend continues to manage through the underwriting decisions made last year with a team focused on rebalancing capital allocation for expanding primary affiliate and market opportunities with a de emphasis on assumed programs.
Claude LeBlanc: As a result ever spans gross premiums written were approximately $87 million down 10% from the prior year, while our loss ratio improved nearly 9% or 880 basis points.
Claude LeBlanc: This reduction in premium written increased ever spans expense ratio, resulting in a combined ratio of 102 for the quarter.
Claude LeBlanc: We believe the expense ratio will begin to trend more favorably in coming quarters, as we migrate the portfolio and further scale our business.
Claude LeBlanc: Turning to our legacy business.
Claude LeBlanc: Outside of our control the OCI approval process for the sale of our legacy business continues and we look forward to the completion of the sale to fluctuate our transformation to a pure play specialty P&C insurance business.
Claude LeBlanc: I will now turn the call over to David to discuss our financial results for the quarter David.
David: Thank you Claude and good morning, everyone.
Speaker Change: But the first quarter of 2000 and twenty-five ambac generated a net loss from continuing operations two shareholders with $16 million or 58 cents per share compared to a loss of 4 million or nine cents per share in the first quarter of 2024.
Speaker Change: Discontinued operations produced a net loss of $30 million or 64 cents per share in the first quarter of 2025.
Speaker Change: As a reminder, the financial performance of our legacy financial Guaranty business reported through discontinued operations has no impact on the economics of the pending sale transaction. Despite its inclusion in our consolidated financial results.
Speaker Change: This quarter EPS included approximately 23 cents per share of headwind from the change in carrying value of redeemable Noncontrolling interest as a result of the execution of option agreements with regards to certain of the minority interest underlying the beat M. G H.
Speaker Change: Adjusted EBITDA from continuing operations to stockholders was a loss of 1 million compared to a slight profit in the first quarter of 2024.
Speaker Change: Total revenues from continuing operations were up 27% to 63 million in the first quarter compared to the first quarter of 2024, driven primarily by the acquisition of beat.
Speaker Change: Total expenses from continuing operations of 78 million compared to 53 million in the first quarter of 2024.
Speaker Change: Compared to last year the increase in expenses was driven by a $21 million increase in general and administrative expenses, including 15, and a half million related to the acquisition of beat and transactional expenses.
Speaker Change: $8 million increase in intangible amortization related to the Cid acquisition and interest expense of $5 million related to the short term financing that would be repaid with the proceeds from the sale of the legacy business.
Speaker Change: These increases were partially offset by lower losses incurred by ever span.
Speaker Change: The rider revenue increased by 129% compared to the first quarter of 2020 $4 million to $41 million. The growth was driven primarily by the acquisition of <unk> capital and strength in specialty commercial auto.
Speaker Change: Usually offset by headwinds in certain A&H lines and deceleration in property line pricing.
Speaker Change: Operating basis that is before the impact of Noncontrolling interests.
Speaker Change: Dorado produced 12 million of adjusted EBITDA, and a 29, 5% margin compared to 5 billion on a 28, 7% margin in the first quarter of 2024.
Speaker Change: Cerrado contributed adjusted EBITA to shareholders of $7 1 million for the quarter at a 17.3% margin up 69% compared to $4 2 million at a 23, 5% margin for the first quarter of 2024.
Speaker Change: The lower margin in first quarter of 2025 versus first quarter of 2024 related to the impact of Noncontrolling interest and beat it.
Speaker Change: The impact of Noncontrolling interests on bottom line margins may flex a bit quarter to quarter, depending on the relative performance of each underlying M. G E.
Speaker Change: <unk> to our ownership level.
Speaker Change: Converge overtime with margins on an operating basis as we buy in portions of the Noncontrolling interests.
Speaker Change: Ever spans net written and net earned premiums in the quarter were $18 million and $16 million down from 26 million and 26 million respectively from the prior year period due to the previously announced non renewal of our personal lines NSA reinsurance program and stem.
Speaker Change: Back from certain commercial auto program.
Speaker Change: The loss ratio of 66, 9% in the first quarter of 2025.
Speaker Change: Move from 75, 7% in the first quarter of 2024.
Speaker Change: Quarter benefited from these underwriting actions and it's performing more in line with our longer term expectations.
The expense ratio of 35, 2% in the first quarter of 2025 was up from 22, 7% in the prior year quarter.
Speaker Change: This increase was driven by the prior year period, having a 6% benefit from sliding scale commissions.
Speaker Change: Pad to no benefit this quarter and the lower earned premium base.
Speaker Change: <unk> combined ratio for the first quarter of 102, 1% is up 370 basis points from 98, 4% last year to date.
Speaker Change: For the quarter ever staying produced under $2 million of adjusted EBITDA to stockholders slightly less than our results for the first quarter of 2024.
Speaker Change: AFG on a stand alone basis, excluding investments in subsidiaries and cash investments and net receivables of approximately 104 million with $2.25 per share.
Claude: Now I'll turn the call back to Claude for some closing remarks.
Claude LeBlanc: Thank you David.
Claude LeBlanc: As we wait final regulatory approval for the sale of our legacy business. We have set our sights squarely on the growth of our specialty P&C business, where market conditions present significant opportunities to scale. Our platform. We believe the unique value proposition of our platform, which includes one access to manage capacity too.
Claude LeBlanc:
Claude LeBlanc: Permanent capital with access to future growth capital three and aligned partnership model and for a technology focused shirts service model committed to the development of strong data and AI capabilities, and providing key risk and the underwriting oversight to our M. G businesses.
Claude LeBlanc: Not only strengthened our position in the market, but also enhances our appeal to M G partners and capacity providers.
Claude LeBlanc: The overall attractiveness of this value proposition was evidenced by our ability to launch six new M. Jay's last year led by recognized industry leaders, each of whom had many options and partners to build their businesses.
Claude LeBlanc: As I've noted previously we are building our business for the long term and as our business model continues to resonate in the specialty MGA and delegated authority program space I believe we are well positioned to achieve our long term goals of generating $80 million to $90 million of adjusted EBITDA to Ambac common shareholders.
Claude LeBlanc: In 2028.
Claude LeBlanc: I look forward to updating you on our progress in the coming quarters.
Speaker Change: Operator, please open the call for questions.
Claude LeBlanc: Thank you we will now be conducting a question and answer session.
Claude LeBlanc: I'd like to ask a question. Please press star and then one on the telephone keypad.
Claude LeBlanc: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You might be star T. He would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it might be necessary to pick up your handset before Christmas stockings.
Speaker Change: One moment, please while we poll for questions.
Maxwell: The first question. We have is from Maxwell feature of <unk> Securities. Please go ahead.
Mark Hughes: Hi, good morning, I'm on for Mark Hughes.
Speaker Change: When you're ramping up these nga's, how important staffing to the topline growth and then off that what are you seeing in the market in terms of recruiting hiring and retaining experienced people.
Speaker Change: Thanks for the question Mark and good morning.
Yes staffing is something that we look at for individual engineers, but we're also exploring it again, depending on the the niche and the specialization of the M. J on assured service basis. So it's something that we are we look at both holistically and for individual M. G H.
Speaker Change: And I would say the opportunities for staffing and end and growth are significant I I think the attractiveness of our business model, which I outlined a few minutes ago, along with a strong recruitment effort for top talent has served us well both for a.
Speaker Change: You know producers as well as strong underwriting talent and we see a deep pipeline of those opportunities.
Speaker Change: In our Q.
Speaker Change: Understood and then could could you provide an update on your mix of property versus casualty and how is that impacting the outlook for growth in anywhere you're seeing more opportunity.
Speaker Change: Sure Matt So a property as you know is a critical part of of the platform. Most of our property business comes out of our out of the beef platform.
Speaker Change: So I would say that going forward.
Speaker Change: The all of the liability side of the book is.
Speaker Change: Gonna be the primary source of growth it's art.
Speaker Change: Casualty focused business.
Speaker Change: We're certainly focused on diversifying our booked continuously we still find it attractive the the property side of the business. As you know pricing has started to soften a bit in that in that sector, but we still find the returns there are very attractive. So the key has been to diver.
Speaker Change: Suffice to different segments of the property.
Speaker Change: Base that we're operating in and the other area that we find particularly attractive as well as the A&H space.
Speaker Change: Which is an important component of the platform going forward.
Speaker Change: Got it. Thank you and then just more broadly can you comment on the competitive environment.
Speaker Change: The competition is certainly out there and I'd say growing in certain areas of the market, but we again, we believe that our differentiation with our capacity our relationships and access to manage capacity and our differentiator is on our on our on our model.
Speaker Change: You know allows us to attract top talent in our business that the competition with other business models are again, we we do see it and it is more frequent and it is something that we're keeping a close eye on.
Speaker Change: Great. Thank you for taking my questions.
Speaker Change: Oh.
Speaker Change: Yes, two questions at this time and this concludes today's teleconference.
Speaker Change: Thank you for participating you may disconnect your lines at this time.
Speaker Change: Keith.
Speaker Change: Yes.
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