Greetings, and welcome to Ambac Financial Group, Inc. Third quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Charles Sebaski, Head of Invest Relations. Please go ahead.

Thank you. Good morning and welcome to Ambac's third quarter 2024 call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO and David Trick, Chief Financial Officer. 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, we'll be highlighting slides from an investor presentation which can be located on our website. 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. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. 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. We do not undertake any obligation to update forward-looking statements. Also, in our prepared remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available on the investors section of our website, ambac.com. I would now like to turn the call over to Mr. Claude LeBlanc.

Thank you, Chuck, and welcome to everyone joining today's call. The third quarter was a milestone quarter for Ambac as we materially advanced our strategy towards becoming a pure play P&C business with the acquisition of Beat Capital. The quarter also reflected the very strong organic growth behind our businesses with the announcement of multiple new MGA launches. Last night after market close, we also announced the acceleration of our $50 million share buyback program which will commence immediately. Turning to our distribution business. With the acquisition of Beat, we have further advanced our goal towards becoming a leading destination for MGA and underwriting talent, which we believe will lead to exceptional long-term growth. While acquisitions will remain one pathway for our future expansion, organic growth is our key strategic focus as we expand our distribution business. Between Beat and Cirrata, we have launched six new programs this year including one during the quarter and two in October. These six new MGAs cover a broad set of risk classes including E&S Casualty, Management Liability, Professional Liability, Technical Commercial Property and Credit. The exceptional leadership of these franchises come with the pedigree from some of the best in the industry, including names like Arch, AIG, Nationwide, FM Global and Hiscox, amongst others. These six new MGAs will help drive significant future organic growth to our business starting in 2025. As our business scales, we will also be providing the costs associated with launching these de novos. There is likely to be some volatility to the expenses as the timing, size and pathway to profitability of each new startup opportunity fluctuates. However, it is reasonable to think about each de novo typically incurring approximately $1.5 million to $3.5 million of expenses spread over six to eight quarters from launch. These startup expenses…

Thank you, Claude, and good morning, everyone. For the third quarter of 2024, Ambac generated a net loss of $28 million or $0.63 per diluted share compared to net income of 66 million or $1.41 per diluted share in the third quarter of 2023. Adjusted net loss was $19 million or $0.46 per diluted share for the quarter compared to adjusted net income of $94 million or $2 per diluted share in the third quarter of 2023. Our results for the third quarter of 2024 were impacted by several notable items including approximately $17 million of legal and advisory expenses related to the acquisition of Beat and the pending sale of AEC. A $13 million loss at the Legacy Financial Guarantee business, mostly driven by lower loss reserve discount rates. $3.8 million of short-term financing costs associated with the Beat acquisition, $1.3 million of incurred startup expenses at Cirrata, and net Cirrata FX losses of $1.4 million. These expenses were partially offset by a $7.5 million net gain on the sale of Scenic, Everspan admitted carrier and a $5 million gain at AFG related to the hedging of the British pound purchase price of Beat. During the third quarter we continued to experience meaningful growth in our specialty P&C businesses. Dorada Premiums grew by 133% to $145 million and total revenue increased by 64% to $24 million compared to the third quarter of 2023. Net revenue equaling total revenue less commission expense grew 135% to $14 million compared to the third quarter of 2023. Growth was driven by the acquisition of Beat Capital, an additional month of Riverton results and organic expansion. EBITDA was $2.4 million $2.7 million after not controlling interest for the third quarter of 2024 compared to $3.5 million $2.9 million after not controlling interest respectively reduced…

Thank you, David, as we head towards the end of 2024, I am very excited by the prospects of Ambac's future and our ability to create shareholder value both near-term and long-term. Here are a few notable items on our horizon. One, Launching our $50 million share buyback program which we will commence immediately. Two, closing on the sale of our Legacy Financial Guarantee business which completes Ambac's transformation into a specialty P&C franchise and materially replenishes our capital resources. Three, continuing to scale and diversify our insurance distribution business both organically and strategically. And lastly, an anticipated rebranding of our company in 2025 following the sale of our Legacy Business. As previously reported in September, we have our sights set on delivering the 2028 EBITDA goal of $70 million to $80 million and I feel that we are solidly positioned to deliver on these results. Operator, Please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Mark Hughes with Truist Securities. Please go ahead.

Thank you. Good morning. For your Everspan business, you talked about the combined ratio a little bit above 100. I think you suggested your goal was to keep that below 100. Is that the longer-term target? Is there a, a combined ratio you'd like to achieve and what does that translate into in terms of return, ROE within Everspan?

Thanks Mark. It's David Trick, appreciate the question. Yeah, I mean absolutely. In the short-term we're looking to get that combined ratio below 100. Longer-term, we've indicated before that we're looking at a combined ratio closer to 90 long-term and in terms of ROEs, we see that as translating to mid-teen roes.

When you lay out your guidance, kind of your longer-term objectives, the $70 million to $80 million dollars goal, is there a rough split between Cirrata and Everspan and should be a balanced model or do you think one will be more significant than the other?

Mark, this is Claude. So yeah, the split is really not a split. It's really the distribution business which will be the predominant growth engine behind our platform. Everspan is a strategic component of that, as is our other managed capacity relationships that we work with. So, I think you should think of really the growth and whether it's 85% or 90% plus of the earnings growth really being attributable to the distribution side.

Thank you for that. If I could squeeze in one more. As you're launching these MGA's, how do you find the appetite in terms of carrier capital support? Maybe contrast now versus six twelve months ago. Is that fairly straightforward? Just some thoughts there would be helpful.

Sure. So, as it relates to, you know, our startups or de novos, again going back to our strategic components of having managed capacity, whether it be through Everspan, through the Lloyd syndicates that we now have with Beat Convergence or sorry, our UK, sorry, our Bermuda reinsure Cadenza Re. We have access to multiple sources of capacity in addition to third party capacity. So, the capacity issue tends not to be an issue on launches, on acquisitions and on launches though as portfolios mature and diversify, we then look to expand into new market sources and typically third party sources as part of our growth strategy. But to date it's not been as much of an issue. Clearly there's some challenges in some of the casualty lines we see for some startups, but that is not really a factor, you know, pending our evaluation of the opportunities and the management teams. Given that we typically take a large portion or 100% of the capacity for the startups.

Appreciate that. Thank you.

Thank you. Next question comes from the line of Dennis Chua with Repertoire Partners. Please go ahead.

Hey guys, congrats on the great quarter. Congrats on the close on Beat and seems like there's just one more hurdle for the sale of AEC. I had two questions. So one was on the buyback, the decision on pulling forward that buyback and starting it immediately. Obviously, we think that was a good decision. But what changed in the last couple of months such that the board decided to do it now? And then the second question I had was on Everspan, notice that the year-to-date gross written premiums and program fees are really tracking ahead towards your previous guide of I think it was like $375 million to $400 million of gross rent premiums for the year, $12 million program fees for the year. Would you say that we're tracking ahead of that or is Q4 just seasonally a little bit weaker and are we on track for that mid-teen ROE in the near to midterm? Thank you.

Thanks Dennis. Starting, well David, do you want to hit the question first?

Yeah. So overall I think we're tracking well to our previous guidance. There will be, you know, some moderation in the fourth quarter, a little bit of seasonality, but as I mentioned, I think in prior calls and on this call bit we are exiting certain programs that don't align with our long-term goals that I outlined before in terms of the combined ratio and long-term ROE. So, there'll be some noise in the fourth quarter but I think we'll be from a production standpoint will be around our guidance level for the full year.

And coming back to the timing or acceleration of the program, we did commit to launching a program post the sale of the legacy business, but given where we are in terms of our progress on that, the shareholder vote being behind us, the PRA approval being in hand, really down to the Wisconsin approval which again we don't have control over. But we think you know, it is an imminent process and feel highly confident that we will get to a close in a not too distant future. I think that was only one factor and simply the continued dislocation between what we believe the true value of our platform is relative to the current stock price just presents a very attractive opportunity anywhere near the current trading values of our stock. So, the board thought it was a good time to press forward and that's why we decided to move forward earlier.

Makes sense. Can I squeeze in one more? If you don't mind. So, the $70 million $80 million long-term EBITDA target, would you say that's a stretch goal or more on the conservative side? And what do you think of the biggest driver for surpassing that number?

Yeah, I wouldn't say it's a stretch goal. It is absolutely something where we're focused on and the biggest driver to get there is certainly the organic growth. You know, as Claude had mentioned, acquisitions will continue to play a part, but it's really the underlying organic growth of our existing businesses as well as startup entities that we are pursuing. And as Claude mentioned, a number of them have been launched this year that will really, you know, drive big components of that 2028 guidance. You know, I looked at recently some of the, you know, the forecast for some of those startups that launched this year and the business plans and we're very excited about it and very optimistic that those business plans will be successful and be a big contributor to the $70 million $80 million guidance. And then secondly, as we mentioned, in terms of the aspirations for Everspan, we expect that business to continue to grow and our focus now that we've established a good basis focus is clearly on profitability and driving towards that ROE that we guided to. So, you know, the combination of those clearly is on the right track and we continue to be optimistic about the guidance we provided.

And just one other point I'd add Dennis, is that, you know, one other key component around this, and it's really a component that we control is really the buying of the non-controlling interest portion of our or MGA's. And that could of course vary but that will also constitute a meaningful part and it is something that we have under our control to a large degree. So that also gives us a great deal of confidence in terms of getting to our numbers.

Thank you.

Thank you. Next question comes from the line of Harry Fong with Roth MKM. Please go ahead.

Good morning, Claude, just a quick question sort of in part a follow on to the prior question in terms of long-term growth, I was extremely pleased to see the new partnership with Mike Miller, formerly president of Scottsdale. He's a very visible player in the E&S insurance market along with his team. I'm sure Mike had a lot of other potential partners that he could have teamed up with, but he elected Ambac. Similarly, you just say the same thing about Beat Capital. Beat has very, very good relationships and is well thought of in the UK market. How were you able to convince both Mike Miller and Beat to partner up with Ambac when they likely had many other potential partners.

Thanks, Harry. Yeah, I think the, you know, our model and strategy that we outlined, you know, going back four years now, was really a model that was predicated on having, you know, underwriting performance with our MGAs that would be, you know, in the top quartile. It's also a partnership model where we have strong alignment of interest with our MGA partners. And that's true for acquisitions as well as startups. So that would cover both Mike and John and his team. We're also a permanent capital vehicle. You know, a lot of these participants, whether they're taking the company to the next stage, as in the case of Beat, or they're launching what they hope to be and expect to be a very, very strong and successful platform, are looking for that permanent capital stability and also the strength of our operations to support their businesses as they continue to grow. And I think the other aspect is just having the breadth of capacity relationships and distribution relationships that we bring to the mix. There aren't many and in fact I'd say they're hard to identify comparatives to the offering that we bring to the market. And of course, cultural fit is probably the most important factor that we look for. And you know, we were able to find that with Mike and John and for that matter the other MGA's that we brought into the team that we're also very impressed with and proud to have as part of our family. So, we're very pleased that again we were able to partner with these two excellent leading teams in the marketplace. But we will have many more to come and a number in the pipeline that we think will also be part of the growing family that will be equally as impressive. So, I guess I'd leave it at that, Harry, unless you have other questions.

Yeah, well, I guess a follow-on question might be for David related to this. Obviously, Mike Miller's group and Beat in 2025 is likely to be viewed as an M&A or inorganic growth contributor to the distribution business. But by 2026 it will now be organic growth. How are the numbers looking as we go into 2026? What do these two companies need to do to make it easy for you to hit your EBITDA numbers by '27, '28?

Good question, Harry. So, I would say organic growth wise, I mean, Beat will be contribute to organic growth in 2025 and '26 as we obviously acquired them effective July 31. So the latter part of '25 will include on our organic basis and Mike's business as Pivix. As a startup really is organic because we're capitalizing that business and getting it off the ground. So, I think we went into both these acquisitions and investments and partnerships with a plan in mind. And so I think, you know, that plan is reflected in the guidance we've given. So, they have to, you know, they have to hit their plan. I don't think it's anything more special outside of that. And as you pointed out, these are industry leading people with strong backgrounds and experience in the space. And we went in, as I mentioned, with a plan in place and we have the utmost confidence that they'll deliver on their plans.

And Harry, I think again, we talk about this, but the shared service offering and support that we bring these platforms outside of capacity and distribution is also something that's critical, obviously with startups, but also even in the case of Beat, with its significant expansion into the US where we have a lot of our expertise and I think the, you know, we will be providing, you know, a key component of the assistance behind the ramp ups and startups behind these platforms and expansions and feel that, you know, we have a great basket of tools to help them manage and expand at the skill and pace that they want to get to, which I think will be critical in terms of getting them to where they meet their plans and even exceed their plans in the coming year or two.

Got it. And if I may ask one more question with respect to the Wisconsin regulator, I know that, you know, at this point in their review, they're more likely to be talking to Oaktree than you to make sure that Oaktree is the rightful right, not right, not rightful, as the right owner in the financial guarantee business. So, have you heard anything from either Oaktree or the regulator to suggest that there might be any issues related to the final stage of the regulatory review?

We have not heard of any issues, Harry. And you're right, I mean, a lot of the dialogue is between Oaktree and our regulators at this stage. We're kept informed, but we have not heard of any issues and we understand things continue to progress.

Thank you.

Thank you. There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.