GWG Holdings, Inc. Reports Results for the Third Quarter Ended September 30, 2019
Thursday, 14. November 2019 22:30
MINNEAPOLIS, Nov. 14, 2019 (GLOBE NEWSWIRE) -- GWG Holdings, Inc. (Nasdaq: GWGH), a financial services holding company committed to transforming the alternative asset industry through innovative liquidity products and related services for the owners of illiquid alternative investments, today announced its financial and operating results for the third quarter ended September 30, 2019.
Third Quarter 2019 Financial and Operating Highlights
Reported continued record realizations from our portfolio of life insurance:
Realized $27.5 million of face amount of policy benefits from 22 life insurance policies during the quarter.
Reported additional policy realizations of $14.5 million from twelve policies through November 14, 2019.
Total 2019 year-to-date realizations of $95.5 million from 73 policies – compared to $71.1 million from 62 policies for the entire year of 2018.
Ended the quarter with a life insurance portfolio of $2.06 billion in face amount of policy benefits consisting of 1,174 policies.
Reported continued success raising capital to fund our business through the L Bond investment product:
Restarted sales of L Bonds in early August.
Experienced consistent near record levels of demand since the restart with combined L Bond sales for August and September of $107 million.
Hired five new sales executives with strong experience in the sales and marketing of alternative investments.
Began the process of separating the Company’s insurance technology subsidiaries, Life Epigenetics Inc. and YouSurance General Agency, LLC by contributing these subsidiaries to a newly formed limited liability company InsurTech Holdings, LLC, which is a subsidiary of GWGH and managed by InsurTech Management, LLC, a company controlled by Jon Sabes, former President and Chief Executive Officer of GWGH.
Reported the inclusion of GWGH in the Russell 2000 Index, the well-known index of small-cap stocks.
Reported total liquidity (cash, restricted cash and policy benefits receivable) of $144.7 million at November 12, 2019.
“We believe we have put in place many of the key elements we need to successfully execute our strategy of providing products and services to the vast market of owners who hold illiquid alternative investments,” said Murray Holland, GWGH’s Chief Executive Officer. “We look forward to leveraging the best of GWGH and The Beneficient Company Group, L.P. to create a successful model that serves the growing market of investors who need liquidity.”
1. Financial & Operating Highlights
($ Thousands except per share information)
Q3 2019
Q3 2018
YTD Q3 2019
YTD Q3 2018
Revenue
$
22,211
$
20,937
$
71,438
$
59,794
Expenses
43,570
31,459
127,415
79,551
Per Share Data1:
Net Income (Loss)2
(0.75
)
(2.52
)
(2.09
)
(5.50
)
Capital Raised (L Bonds)
107,012
68,884
278,239
166,082
Liquidity3,
91,254
131,416
91,254
131,416
Life Insurance Portfolio4
2,064,156
1,961,598
2,064,156
1,961,598
Life Insurance Acquired4
3,155
120,430
96,321
333,078
Face Value of Matured Policies
27,470
7,973
80,927
50,100
TTM Benefits / Premiums5
164.9
%
135.8
%
164.9
%
135.8
%
(1) Attributable to common shareholders (2) Per basic and fully diluted share outstanding (3) Includes cash, restricted cash and policy benefits receivable (4) Face amount of policy benefits (5) The ratio of policy benefits realized to premiums paid on a trailing twelve month (TTM) basis
2. Revenue and Expense Discussion
Third Quarter 2019 vs. Third Quarter 2018:
Total revenue was $22.2 million in the current period, compared to $20.9 million in the year ago period primarily due to:
Net revenue recognized at matured policy event was $14.3 million higher, unrealized gain on acquisition was $8.5 million lower (as a result of lower life insurance purchases) and change in estimated probabilistic cash flows net of premium and fees was $3.6 million lower.
Net interest income on our commercial loan, exchange note, and Liquid Trust note was $0.6 million lower.
Other interest income decreased $0.2 million.
Total expenses were $43.6 million in the current period, compared to $31.5 million in the year ago period primarily due to:
Interest and fees increased by $6.5 million. This change was driven by increased interest on L Bonds of $5.2 million as a result of additional amounts outstanding, increased interest on Seller Trust L Bonds of $2.6 million which were outstanding the entire third quarter of 2019 versus a partial quarter in the year ago period, and partially offset by a decrease in interest on our senior credit facility of $1.3 million.
Operating expenses increased by $5.6 million. Compensation and professional expenses increased by $3.6 million and $1.2 million, respectively, primarily resulting from performance share unit expense and retention incentives associated with the Purchase and Contribution transaction (the strategic transaction with The Beneficient Company Group, L.P. (Beneficient) which occurred in April 2019), as well as increases in legal, audit and other professional fees. Other expenses also increased by $0.8 million due to increases in contract labor, IT expense, travel, and business insurance (also largely driven by the Purchase and Contribution transaction with Beneficient).
Third Quarter Year to Date 2019 vs. Third Quarter Year to Date 2018:
Total revenue was $71.4 million in the current period, compared to $59.8 million in the year ago period primarily due to:
Net revenue recognized at matured policy event was $29.1 million higher, charges on life expectancy updates were $4.9 million lower, unrealized gain on acquisition was $15.0 million lower (as a result of lower life insurance purchases), and a change in estimated probabilistic cash flows net of premiums and fees and change in life expectancy was $12.7 million lower as compared to the year ago period.
Interest income from the commercial loan, exchangeable note, and Liquid Trust promissory note increased $5.4 million and other income decreased $0.1 million.
Total expenses were $127.4 million in the current period, compared to $79.6 million in the year ago period primarily due to:
Interest and fees increased by $28.7 million year over year. Outstanding L Bonds increased over this time period resulting in $16.6 million of additional interest expense, Seller Trust L Bonds, which were issued in August 2018, increased interest expense by $16.4 million and senior credit facility interest decreased by $4.3 million.
Operating expenses increased by $19.1 million. Compensation and professional expenses increased by $8.6 million and $6.5 million, respectively, primarily resulting from performance share unit expense and retention incentives associated with the Purchase and Contribution transaction, as well as increases in legal and professional fees. Other expenses also increased by $4.0 million primarily driven by an increase in business insurance purchased in connection with the Purchase and Contribution transaction with Beneficient.
3. Life Insurance Portfolio Statistics
Portfolio Summary:
Total life insurance portfolio face value of policy benefits
$
2,064,156,000
Average face value per policy
$
1,758,000
Average face value per insured life
$
1,887,000
Average age of insured (years)*
82.3
Average life expectancy estimate (years)*
7.3
Total number of policies
1,174
Number of unique lives
1,094
Demographics
74% Male; 26% Female
Number of smokers
45
Largest policy as % of total portfolio face value
0.64
%
Average policy as % of total portfolio face value
0.09
%
Average annual premium as % of face value
3.2
%
* Averages presented in the table are weighted averages.
Distribution of Policies and Benefits by Current Age of Insured:
Percentage of Total
Min Age
Max Age
Number of Policies
Policy Benefits
Number of Policies
Policy Benefits
Wtd. Avg. LE (Years)
95
101
18
$
36,052,000
1.5
%
1.8
%
2.2
90
94
145
284,908,000
12.4
%
13.8
%
3.3
85
89
249
587,733,000
21.2
%
28.5
%
5.1
80
84
251
456,526,000
21.4
%
22.1
%
7.9
75
79
223
341,449,000
19.0
%
16.5
%
9.8
70
74
214
284,739,000
18.2
%
13.8
%
11.1
60
69
74
72,749,000
6.3
%
3.5
%
11.6
Total
1,174
$
2,064,156,000
100.0
%
100.0
%
7.3
4. Life Insurance Policy Originations
Life Insurance Portfolio Activity:
Three Months Ended September 30
Nine Months Ended September 30
2019
2018
2019
2018
Total policy benefits purchased
$
3,155,000
$
120,430,000
$
96,321,000
$
333,078,000
Life insurance policies purchased
6
89
81
233
Average policy benefit purchased
$
526,000
$
1,353,000
$
1,189,000
$
1,430,000
Direct policy benefits purchased
$
1,305,000
$
16,524,000
$
19,397,000
$
29,561,000
Direct insurance policies purchased
3
17
27
39
5. Additional Information Gain (Loss) on Life Insurance Policies:
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Change in estimated probabilistic cash flows(1)
$
17,908,000
$
19,069,000
$
52,161,000
$
55,483,000
Unrealized gain on acquisitions(2)
472,000
9,021,000
6,775,000
21,790,000
Premiums and other annual fees
(17,219,000
)
(14,765,000
)
(49,000,000
)
(39,670,000
)
Change in discount rates(3),(4)
—
—
—
—
Change in life expectancy evaluation(5)
—
73,000
—
(4,890,000
)
Face value of matured policies
27,470,000
7,973,000
80,927,000
50,100,000
Fair value of matured policies
(10,839,000
)
(5,650,000
)
(31,590,000
)
(29,883,000
)
Gain (loss) on life insurance policies, net
$
17,792,000
$
15,721,000
$
59,273,000
$
52,930,000
(1)
Change in fair value of expected future cash flows relating to our investment in life insurance policies that are not specifically attributable to changes in life expectancy, discount rate changes or policy maturity events.
(2)
Gain resulting from fair value in excess of the purchase price for life insurance policies acquired during the reporting period.
(3)
The discount rate applied to estimate the fair value of the portfolio of life insurance policies we own was 8.25% at each quarter end in 2019 and at December 31, 2018. This discount rate was 10.45% at September 30, 2018 and December 31, 2017.
(4)
The discount rate of 8.25% is based on our “longest life expectancy” methodology (among other factors) which was adopted at December 31, 2018, whereas the discount rate of 10.45% is based on our historical “average life expectancy methodology” (among other factors). See our 2018 Form 10-K filed on July 9, 2019 with Securities and Exchange Commission for additional information.
(5)
The change in fair value due to updating life expectancy estimates on certain life insurance policies in our portfolio.
Policy Benefits Realized and Premiums Paid (TTM):
Quarter End Date
Portfolio Face Amount ($)
12-Month Trailing Benefits Realized ($)
12-Month Trailing Premiums Paid ($)
12-Month Trailing Benefits/Premium Coverage Ratio
September 30, 2015
878,882,000
44,482,000
25,313,000
175.7
%
December 31, 2015
944,844,000
31,232,000
26,650,000
117.2
%
March 31, 2016
1,027,821,000
21,845,000
28,771,000
75.9
%
June 30, 2016
1,154,798,000
30,924,000
31,891,000
97.0
%
September 30, 2016
1,272,078,000
35,867,000
37,055,000
96.8
%
December 31, 2016
1,361,675,000
48,452,000
40,239,000
120.4
%
March 31, 2017
1,447,558,000
48,189,000
42,753,000
112.7
%
June 30, 2017
1,525,363,000
49,295,000
45,414,000
108.5
%
September 30, 2017
1,622,627,000
53,742,000
46,559,000
115.4
%
December 31, 2017
1,676,148,000
64,719,000
52,263,000
123.8
%
March 31, 2018
1,758,066,000
60,248,000
53,169,000
113.3
%
June 30, 2018
1,849,079,000
76,936,000
53,886,000
142.8
%
September 30, 2018
1,961,598,000
75,161,000
55,365,000
135.8
%
December 31, 2018
2,047,992,000
71,090,000
52,675,000
135.0
%
March 31, 2019
2,098,428,000
87,045,000
56,227,000
154.8
%
June 30, 2019
2,088,445,000
82,421,000
59,454,000
138.6
%
September 30, 2019
2,064,156,000
101,918,000
61,805,000
164.9
%
Webcast/Conference Call Details
Management will host a webcast/conference call Thursday, November 21 at 4:30 p.m. EST to discuss our financial and operating results. The webcast will give viewers audio and access to PowerPoint slides that illustrate points made during the call. To register for the call and webcast, go to http://get.gwgh.com/q32019webcastinvite.
GWG Holdings, Inc. (Nasdaq: GWGH), a financial services holding company committed to transforming the alternative asset industry through innovative liquidity products and related services for the owners of illiquid alternative investments, is the parent company of GWG Life which owns a portfolio of $2.06 billion in face value of life insurance policy benefits as of September 30, 2019. GWGH has executed a series of strategic transactions with The Beneficient Company Group, L.P., a financial services company providing proprietary liquidity solutions to owners of alternative assets, resulting in the closer alignment of the two companies. This alignment includes changing a number of GWGH management and the board of directors with Beneficient management, directors and affiliated parties. GWGH has also created an independent, special committee of the GWGH board of directors. GWGH’s subsidiary InsurTech Holdings, LLC, owns two companies exploring business applications for the emerging science of epigenetics: Life Epigenetics which is working to commercialize epigenetic technology for the life insurance and related industries; and YouSurance, a digital life insurance agency whose goal is to use epigenetic testing to support health and wellness while reducing the cost of insurance.
This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this press release regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "would," "target" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about our estimates regarding future revenue and financial performance. We may not actually achieve the expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the expectations disclosed in the forward-looking statements that we make. More information about potential factors that could affect our business and financial results is contained in our filings with the Securities and Exchange Commission. Additional information will also be set forth in our future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we make with the Securities and Exchange Commission. We do not intend, and undertake no duty, to release publicly any updates or revisions to any forward-looking statements contained herein.
Media Contact: Dan Callahan Director of Communication GWG Holdings, Inc. (612) 746-1935 dcallahan@gwgh.com
GWG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 2019 (unaudited)
December 31, 2018
ASSETS
Cash and cash equivalents
$
65,680,464
$
114,587,084
Restricted cash
8,204,705
10,849,126
Investment in life insurance policies, at fair value
807,518,088
747,922,465
Life insurance policy benefits receivable, net
17,369,176
16,460,687
Financing receivables from affiliates
241,185,081
184,768,874
Equity method investment
370,652,128
360,841,651
Other assets
50,391,311
45,437,164
TOTAL ASSETS
$
1,561,000,953
$
1,480,867,051
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation
$
131,717,520
$
148,977,596
L Bonds
830,341,949
651,402,663
Seller Trust L Bonds
366,891,940
366,891,940
Accounts payable
2,570,842
9,276,507
Interest and dividends payable
16,726,344
18,555,293
Other accrued expenses
6,700,336
4,705,170
TOTAL LIABILITIES
1,354,948,931
1,199,809,169
STOCKHOLDERS’ EQUITY
REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 92,124 and 97,524; liquidation preference of $92,661,000 and $98,093,000 as of September 30, 2019 and December 31, 2018, respectively)
81,509,765
86,910,335
SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 147,604 and 148,359; liquidation preference of $148,465,000 and $149,225,000 as of September 30, 2019 and December 31, 2018, respectively)
128,307,735
129,062,704
COMMON STOCK
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding 33,033,420 as of September 30, 2019 and 33,018,161 as of December 31, 2018)
33,033
33,018
Additional paid-in capital
237,159,909
249,662,168
Accumulated deficit
(240,958,420
)
(184,610,343
)
TOTAL STOCKHOLDERS’ EQUITY
206,052,022
281,057,882
TOTAL LIABILITIES & EQUITY
$
1,561,000,953
$
1,480,867,051
GWG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended
Nine Months Ended
September 30, 2019
September 30, 2018
September 30, 2019
September 30, 2018
REVENUE
Gain (loss) on life insurance policies, net
$
17,792,324
$
15,721,513
$
59,218,532
$
52,930,008
Interest and other income
4,418,655
5,215,515
12,219,762
6,863,640
TOTAL REVENUE
22,210,979
20,937,028
71,438,294
59,793,648
EXPENSES
Interest expense
28,289,670
21,799,332
83,751,611
55,010,519
Employee compensation and benefits
9,136,824
5,548,771
21,084,815
12,527,139
Legal and professional fees
2,594,467
1,421,964
10,263,230
3,751,321
Other expenses
3,549,265
2,688,970
12,315,434
8,262,324
TOTAL EXPENSES
43,570,226
31,459,037
127,415,090
79,551,303
INCOME (LOSS) BEFORE INCOME TAXES
(21,359,247
)
(10,522,009
)
(55,976,796
)
(19,757,655
)
INCOME TAX EXPENSE (BENEFIT)
—
—
—
—
NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT
(21,359,247
)
(10,522,009
)
(55,976,796
)
(19,757,655
)
Earnings (loss) from equity method investment
955,751
—
(371,281
)
NET INCOME (LOSS)
(20,403,496
)
(10,522,009
)
(56,348,077
)
(19,757,655
)
Preferred stock dividends
4,231,641
4,313,542
12,806,173
12,356,513
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
$
(24,635,137
)
$
(14,835,551
)
$
(69,154,250
)
$
(32,114,168
)
NET INCOME (LOSS) PER COMMON SHARE
Basic
$
(0.75
)
$
(2.52
)
$
(2.09
)
$
(5.50
)
Diluted
$
(0.75
)
$
(2.52
)
$
(2.09
)
$
(5.50
)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic
33,033,420
5,894,639
33,010,100
5,840,880
Diluted
33,033,420
5,894,639
33,010,100
5,840,880
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