U.S. Markets closed

Edited Transcript of GWGH earnings conference call or presentation 15-Aug-18 8:15pm GMT

Q2 2018 GWG Holdings Inc Earnings Call

MINNEAPOLIS Sep 3, 2018 (Thomson StreetEvents) -- Edited Transcript of GWG Holdings Inc earnings conference call or presentation Wednesday, August 15, 2018 at 8:15:00pm GMT

TEXT version of Transcript


Corporate Participants


* Dan Callahan

GWG Holdings, Inc. - Director of Communication

* Jon R. Sabes

GWG Holdings, Inc. - Chairman & CEO

* William B. Acheson

GWG Holdings, Inc. - Executive VP & CFO




Operator [1]


Hello, everyone, and welcome to today's webinar. My name Sarah from GoToWebinar, and I will be your technical moderator today. Before we get started, I would like to go over a few items so you know how to participate in today's event. (Operator Instructions) Today's webinar is being recorded, and you will receive a follow-up with a link to view the recording.

All right. I would like to turn things over into Dan Callahan. Welcome, Dan, you now have the floor.


Dan Callahan, GWG Holdings, Inc. - Director of Communication [2]


Thank you, and good afternoon, everyone. My name is Dan Callahan, I'm Director of Communication at GWG Holdings. Welcome to the second quarter 2018 earnings webcast. On the webcast with me today are Jon Sabes, our Chairman and Chief Executive Officer; and Bill Acheson, Chief Financial Officer. Following all of our remarks, we'll be happy to take your questions. (Operator Instructions)

Some statements made on the webcast today along with the projected financial results, including forward-looking statements, are subject to certain risks and uncertainties. Any forward-looking statements made on this webcast are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our earnings release and in our most recent 10-K and 10-Q reports.

During the webcast, you'll hear references to various non-GAAP financial measures, which we believe enhance understanding of our performance. Reconciliation of the non-GAAP numbers to their respective GAAP numbers can be found in the press release available on our website. (Operator Instructions) And today's webcast is being recorded and will be available on our website at gwgh.com through the Investor Relations tab.

With that, I will turn it over to our speakers, Jon and Bill.


Jon R. Sabes, GWG Holdings, Inc. - Chairman & CEO [3]


Thank you, Dan, and thanks, everyone, for tuning in today, and happy to be here. So I'll kick it off, as I always do, is talking about the purpose on which we're engaged in our business, which is an industry innovator on several fronts. First, as an owner of alternative assets and our alternative asset portfolio, with respect to investing in the life insurance secondary markets, and now our alternative asset portfolio expanded to include BEN. We'll talk about BEN as well in the transaction we recently announced. And we'll talk about our purpose relative to the primary life insurance market, relative to our Insurtech efforts as well.

To kick it off, I'm going to first hand the presentation over to Bill Acheson, he'll walk us through our Q2 results and performance metrics updates, and then I'll circle back around with updates on our strategy. So Bill, take it away.


William B. Acheson, GWG Holdings, Inc. - Executive VP & CFO [4]


Thank you, Jon. Thank you, all, for joining. As I typically do, we'll just walk through some of the high-level numbers for our quarter before I turn it back over to Jon to talk about some of our other recent events and announcements, and we'll kick it off here with the metric summary. We'll talk a little bit about our earnings comparison to the same period 1 year ago and then we'll revisit our balance sheet, our independent broker-dealers and we'll finish up with the current state of our life insurance portfolio.

So looking at the quarter ended here in June of 2018, we reported record revenue of $24.3 million, which is roughly double where we were in the same period a quarter ago, and we'll get into these in a little more detail. Total expenses were up about $3 million over that same period. Our general and administrative expenses, which are total expenses less our interest and fees, came out came in a bit lower this quarter versus the same quarter 1 year ago.

We reported a GAAP pretax, basically break even for this quarter versus about a $9 million pretax loss for the 1 quarter ago -- 1 year ago, same quarter. We reported a GAAP net loss attributable to common shareholders of $4.4 million versus roughly twice that amount 1 year ago. We reported record total assets of $895 million in total equity of $172 million. We have plenty of liquidity to meet our cash needs and fund our future growth, that number came in at $158 million at the quarter end.

We reported strong investment product sales of $75 million. Policy purchases this quarter, which we'll get into a bit, rebounded to $118 million of face versus just under $90 million in the second quarter of 2017. And as maybe some of you saw from our press release, our portfolio at the end of the quarter exceeded 1,000 policies for the first time in our history, which is a milestone for the company, and really the result of a lot of support from a lot of people on this phone and years of growing this portfolio. And we finished the quarter, I believe, at 1,010, and we've grown from there, so it's a big deal for us. Happy to report that.

It's -- our portfolio is also seasoning. $226 million of the face amount, of the benefits, are on now aged -- insurance age 90-plus, and that's up nearly $100 million from that same cohort in the second quarter of 2017. We recorded -- reported near-record cash flows this quarter, second quarter of 2018 of $27.6 million versus less than half of that in the quarter-ago period, and we reported adjusted non-GAAP income of $13.4 million this quarter versus $7.3 million 1 year ago for the second quarter.

Taking a little closer look at our earnings. I mentioned that we had -- about doubling of income top line revenue from the 2017 second quarter, and I'll just kind of give you some of the insights on what's going on there. You basically have 3 kind of positives and 3 kind of negatives. We have the higher policy maturities, that's the $27 million versus the $10 million, and that's a big impact. It's a positive.

We have what we call a higher gain rate on these matured policies, which simply means that the policies that matured in the second quarter of this year, we haven't held is as long, and so we had a higher contribution to our revenue from that maturity event. And we had no material life expectancy update adjustments, which have been a feature, really, of our P&L for the past 4 or 5 quarters as we've been working through our life expectancy update schedule, so we had virtually 0 this quarter. So those are the positives.

We had a lower unrealized gain on the acquisition of our policies, which I'll get into, so there's margin compression there. We did have a cost of insurance adjustment, which means some of the premium of the policies of our portfolio were increased, and we had no change in discount rate from the prior period, which was a negative in terms of comparison. But broadly, on the revenue line, obviously, a very good number.

Taking a look at interest and fees, those were significantly higher and those are really as expected, but we had higher debt balances outstanding and we had a higher interest rate on our senior facility, which floats on 1 year LIBOR. And as a lot of you know, that 1 year LIBOR has increased significantly over the past year.

Taking a look at our general and administrative. We're down about 20% period-over-period and that really has to do with some lower compensation expenses from our restructuring of our Las Vegas operation and some lower professional fees due to some projects we were working on.

So that gives you a pretax, basically, breakeven for this quarter. If you take out the preferred dividends that we paid of $4.3 million, you end up with the reported GAAP number of negative 4.4 attributable to common, which is about $0.76 a share on 5.8 million basic shares outstanding.

All right. Moving in to our balance sheet and some of our other areas that we look at. We continue to strongly grow our balance sheet with high-quality assets, and as I mentioned, we reported a record amount of stockholders' equity. Importantly, to be reminded or if you don't know, all of the -- 95% of our carriers, of our policies, are backed by investment grade carriers. Our top 10 carriers by face amount, which represent about 70% of the portfolio, those carriers are rated A+, AA-, right around there. So very highly rated carriers with super senior obligations to pay their claims.

Our liquidity position, which we measure as our cash and our restricted cash that may be in our facilities as well as our benefits receivable, continue to be at a high-level cash cushion for safety as well as to look for opportunities to deploy that. And in the second quarter, we did begin deploying some of it and we reduced our senior line by about $27 million, sequentially from Q1 of '18 to Q2 of '18, and we'll look for further opportunities to use that money in an accretive way to the income statement.

Taking a look at our sales. We continue to enjoy strong interest from our independent broker-dealer network which, broadening that base, is a key objective for us. We continue to resonate well with the independent advisers who's looking for these types of investments. The small hiccup you see there in the Q1 and Q2 of '18, really has to do with our closing of our successful preferred stock offering, and some of the advisers who were on that offering are no longer counted in our selling group. That's very normal when you -- when an offering closes. So we're very happy with the -- both the support we received from our advisers as well as our sales.

So you can look at this graph on our sales, which is the L Bonds are in the blue, and you can see the finishing off of the preferred stock just in the first month of Q2 that was some carryover into April of 2018. You'll see that little gold bar on the right, and in future quarters it will be all blue. And our renewal rates, which is also something we keep a very close eye on, has been (inaudible) for the quarter, in line with our expectations. So that's an important metric to watch as well.

Looking at our life insurance portfolio. The purchase market continues to be competitive, although we did rebound a bit, as you can see in our buys, we did that really by becoming more aggressive in our pricing. And although we're more aggressive in pricing, we are not sacrificing on quality or underwriting or any types of policy features that we consider to be undesirable. And although still competitive, our Q3 margins have been improving a little bit and I expect they'll come in better than they were in Q2, but will still be in a competitive space until we really figure out our D100 strategy, which Jon will talk a little bit about, but that's ongoing.

We've had some positives in that we have seen an uptick in the number of opportunities that have been submitted to us for review from that insurance distribution group, and they've also -- these opportunities have come from a wider range of advisers and broker general agents. So those are both good and our pipelines are growing, but I will say we still need some time to see how big the pipeline can get and then most importantly, to get that pipeline through to conversion. So some positive news on the horizon, but we still have some work to do on our direct 100.

Our policy -- our portfolio continues to grow. As I mentioned, the 1,000 -- we've reached the 1,000 policy mark, which is fantastic, which means our actuarial diversification is increasing. And really, in this case, growth really equals options. And that means options to finance this portfolio, it would lower cost of funds, which we've mentioned several times on the call, something that we are still pursuing as we look at our post-BEN capital structure and as we look into the future, and I believe we're right on track with our portfolio. Very happy with where it is and how it's constructed.

Looking at our portfolio seasoning. As I kind of mentioned a little bit, it continues to season. We've got $2 billion out there, $226 million is associated with the insurance age 90-plus, and it's a great -- still a great long-duration yield asset for GWG that's certainly going to make up a big portion of our returns going forward.

And looking at cash flows from the portfolio, which is one of the key graphs here in the presentation, where you can see the blue line is our trailing 12 months cash flows realized versus the goal line, which is our trailing 12 months premiums paid, and you can see that 7 consecutive quarters we're covering our premiums, which is a really good sign.

The first half of 2018, if you take the Q1 and Q2 together, that represented a record dollar amount of benefits realized, and so we're very happy with where that is. And we expect to see this to continue to grow and to continue to see more room between that blue bar and that gold bar. So we're also very happy with the consistency and the growth there. I suspect there will be periods of time where it will be lumpy, but I think those are going to be fewer and further between. For those of you who have known us for years now, you certainly have seen a certain market improvement in the consistency, and so I think we will continue to enjoy that.

So finally, before I turn it back over to Jon, we look at this portfolio, really, as the driver. If you look at our balance sheet and the earning assets, we look at it really, obviously, as a very high-quality key driver of future growth and future income. And one way of thinking about it is looking at our policy benefits, which is about $1.8 billion at quarter end, and then looking at our investment cost basis, which is about $730 million. And what that number represents is our purchase price, capitalized premiums and capitalized financing cost, and the difference between those is our growth and spread. And that is really that growth spread when that comes out, that is really the driver of our economics.

And as we look at that, that's over about a 6.8 year average life. And so I think about it, I think about $2 billion roughly of event certain cash flow. So we know these cash flows are coming, we don't know when. As I mentioned, it's highly rated carrier obligations, so these are investment grade rated and even more so with 70% of our portfolio. These obligations are also senior to the carrier's most senior obligations. It's been organically grown and well underwritten portfolio that we're very proud of. You add that to a large and growing investment spread, and then you consider also what we call our targeted life expectancy where we've really attempted to keep that life expectancy at a relatively short spot between, let's call it, 6 and 7 years, where we've really been for the past several quarters.

If you combine that with the statistics I gave you on the amount of benefits over age 90, and another way to look at that is also $442 million of our benefits have a life expectancy of less than 4 years, that's a table that we have in our 10-Q. Really, when you add all of that together, the size of it, the age of it, the quality of it, the certainty of it, we really feel like it is a super high-quality asset that is going to be a key measure and a key feature of our returns as we go forward, and really a nice piece of the balance sheet when you consider what benefit it's going to bring to the table.

And for that and for other developments, I'll turn it back over to Jon to pick it up from there.


Jon R. Sabes, GWG Holdings, Inc. - Chairman & CEO [5]


Thanks, Bill. So just sort of staying on that slide for a minute. I think if you think about the type of assets that we do own in terms of this life insurance portfolio, it really does relate well to BEN, and why we did the BEN transaction. And I'll kick it off really from that point, which is BEN is a transformational transaction. That's how we've been talking about it around here. And I think that's appropriate on how you should think about it as an investor or adviser or analyst following the company.

Just to recap the transaction itself. We changed it, just at the very end in the third amended exchange agreement, to be a 2-step closing. So we had our first closing, our initial closing last Friday, 8/11, August 11, and we expect to have the final closing some time in Q4, and that will kind of flow through when we can complete some of regulatory work that we need to do with the SEC later this year.

The transaction that we're closing, in large part, remains exactly how we described it many months ago. And we're grateful for the effort of the many teams who spent the hours and brain damage to kind of get to the close, took a collective effort on both the teams' parts. But in the end, we believe this is transformational for GWG and we're really excited because of what it ultimately brings to the company, which has been and continues to be significant balance sheet growth, and that growth comes with significant diversification in the types of alternative assets that we own.

We're a big believer in the alternative assets space and our partner, BEN, is as well. And it's what they, first, were attracted and were interested in working with us on, which was our alternative asset that we own. As well, this transaction will provide a significant increase to our common equity in the amount of $292 million at the final closing, and that equity will come in at a $10 a share price. So that's a major, major investment. Those are major significant changes to the overall structure of GWG. It's coming at a significant dilution to the common shareholders, but at an accretive valuation.

One new aspect of the transaction that came in late as part of this 2-step closing was a new element, which included a $50 million investment in GWG. This came in at the initial closing and is structured as a convertible preferred, no coupon, no voting, but will convert into common shares at $10 a share at the final close. So that was an exciting addition to the overall transaction and it aligns interests and allows us to do some things that we've been wanting to do for a long time, in particular prior to the dilution that will come to common shareholders.

And that, first, is a return to common shareholders who have been patiently supporting this company and the strategies that it's executing against. And so the board declared a special dividend of $4.30 per share common for shareholders as of record date, August 27, and that will be payable on August 5. The board felt -- sorry, September 5, payable on September 5. Thank you. The board felt that it was appropriate to do so. Our preferred shareholders have been collecting yield from this portfolio along the way. Our L Bond holders has been collecting yield. And again, our common shareholders who -- we've had, certainly, comments from shareholders that they would appreciate to see some return as well. So this is a big deal. We're really excited to be able to deliver this to our common shareholders prior to the dilution that will happen.

In addition, the $50 million investment, the board decided to commit the balance, around $25 million, to our Insurtech. We'll talk about some of the updates on the strategy with our Insurtech, but it just simply is a strong endorsement of this company's commitment to the strategies that are in play. Our advisers, our broker-dealers can be assured as to where the source of capital is coming for this initiative. And as -- people who follow the company, we'll start to show sort of how we're spending that money and they can model appropriately for potentially losses that might come from the investment in what is a tech aspect of our business.

And then, finally, this transformational transaction does allow for a really exciting joint venture for GWG to work with BEN and distribute BEN liquidity products to owners of illiquid alternative assets. We intend to joint venture and distribute these liquidity products with our broker-dealers and financial advisers, to the investors that they serve and beyond. This is really an exciting innovative product and we think it's a key driver on what will create value for GWG shareholders.

So that's a recap of BEN. Think of us as you think of our alternative asset portfolio that Bill was just talking about. Again, the GWG you know and love and owner of illiquid alternative assets in the form of life insurance policies, that have some certain cash payouts, that have uncertainty as to when that cash is going to come out as really a functional equivalent in BEN. And BEN being an owner of illiquid alternative assets now in the form of limited partnership interest, and these are limited partnership interest that have invested in professionally managed funds, whether they be late-stage growth, venture capital, buyout, across the board, a wide diversification and endowment model where, again, the limited -- the partnerships will provide cash and capital. There is some uncertainty. They have long-duration assets. So BEN can provide liquidity to the owners of this assets, and we'll receive the cash flows as those assets are realized.

GWG is a limited partner in BEN. So we are the majority limited partner in BEN by a long shot, and that's how we will participate in the performance of these assets. And that ownership will shrink over time as a Ben gets underway and continues to grow its balance sheet. So all in all, we partnered with an experienced management team. We certainly have our experience in the illiquid alternative asset of life insurance. BEN is a proven team in illiquid alternatives and managing endowment model types of portfolios. All of which have experience and expertise in valuation, underwriting and servicing these assets. And together, we do expect to realize the benefits of revenues, earnings and opportunities together. So a transformational transaction focused in the alternative assets space, expanded for the better of everyone involved. So that's, again, just a recap and a way to think about GWG going forward in partnership with BEN.

Coming back to the life insurance secondary market. We noted in our release that we have a new team member that is an important addition to our team. We've named Brian Bailey as Chief Investment Officer at GWG. That's the first time we've had someone hold this position at the company. And Brian joins us with a level of leadership and expertise that heretofore we haven't had. That's going to really allow both Bill and I to execute more at some of the operational strategies that we have and allow someone who has real deep understanding in leadership to look over our origination, be sure we have profitable origination of life insurance policies and work with our partners at BEN. So we're excited about Brian joining us.

Prior to joining GWG, Brian was the Senior Leader at the Beal Bank, where he deployed $3 billion of capital towards life insurance secondary markets. So again, we're getting someone who really understands this asset class at a level that heretofore we haven't had. As well, Brian has a deep understanding and experience with capital markets and corporate finance which, again, will be a big addition to Bill and I and the execution of the business that we have underway.

I see he just walked in the room, so I'm going to make mention of him, Craig Opp. Yes, there he is, he's looking up now. Craig Opp joined us as General Counsel recently, so that's a big addition for us as well. So we'll be showing our investors a different, I'll call, executive team as we look towards executing our business plan in the near term, but there's a lot to cover so we couldn't capture it all. So we did want to mention Craig. Welcome, Craig. I'm going to have Brian, by the way, join our next call and on a regular basis, our quarterly call, and talk about our alternative assets from a Chief Investment Officer's perspective.

As to our direct origination, D100 as we can call it, direct 100% origination, buying life insurance policies directly from consumers by working with the life insurance distribution hierarchy. For those of you who've been following us, this graphic shouldn't be a surprise. And that is the idea of working with insurance distribution, IMOs, BGAs and agents. This is where we will find life insurance policies to buy. There's existing, very large untapped market opportunity. And we're committed and we believe that the way in which to access this market opportunity is through this insurance distribution hierarchy.

We've been in the process of retooling this team, as Bill mentioned. In May, we transition the team from Las Vegas call center back into Minneapolis. In June, we transitioned our leadership and we put that entire sales effort under Merriah Harkins, EVP, who runs our entire sales team. That sales team is comprised of about 18 sales professionals who have national exposure. We run 6 different territories against -- in which to sell in. So in July, we integrated this D100 effort into this entire sales team. Heretofore, we had kind of run it separately. But now we have really integrated into our entire sales infrastructure, and that's exciting for us because this sales team has done extraordinary for us by working with financial advisers in the alternative asset field and now bringing them into liquidity products with agents and life insurance policies and ultimately, liquidity products with BEN is a big deal as we think about our business going forward.

In August, we're doing our first, what we call, BGA partner rollouts with this sales steam. So again, by the time we do our Q3 call in November, we'll have some tangible results to talk to you. Again, we are seeing signs of life there, so we're definitely not giving up yet. And we'll, hopefully, have some better metrics to report later this year on it.

We haven't given up as well on our life exchange annuity. I brought that up, again, on our last call. Our partner, who -- insurance care partner who we thought we had there, stepped away. As recently as a couple of weeks ago, I've got a new carrier who appears interested in providing us a life exchange annuity. Again, an insurance product pushed through this insurance distribution hierarchy as a way to bring to life and realize the opportunity of a secondary market through an insurance product, so we continue to focus on that execution.

So switching gears away from secondary market and alternative assets. I'm sure for, again, those of you who have been following my favorite topic, Insurtech, a great slide. The future of life insurance is here. It's a great slide produced by one of our branding partners in how we think about this business. I'm really proud of that statement because we're not the only ones who think this.

This is a slide taken from a webinar that was published July 10, just last month, by Dr. Daniel Zimmerman, who is the Senior VP and Chief Medical Director at RGA, the Reinsurance Group of America. One of the largest global life and health reinsurance companies in the world. So Dr. Zimmerman published an article in a webinar entitled, Be Kind to Your Genes: An Insurance Perspective on the Fast-Growing Field of Epigenetics. Fast growing is the point I want to emphasize here. Folks, this stuff is moving fast.

Dr. Zimmerman starts out, and I loved how he did the introduction, he says, things start as science fiction. They almost seem improbable. And when you think about it, the idea that you could talk to a child halfway across the United States on a videophone, if you could launch a spaceship into the upper orbit atmosphere and land it on a postage stamp back in the ocean. If you could, on demand, have any movie or song you want on your phone or on your TV. These are only, a few years ago, seemed almost science fiction like, yet they are in reality today.

The same goes for some of the things happening here in the biological sciences realm. And here, from science fiction things turned to science, where scientists study them, and then they become reality. And here, he talks about epigenetics. So what did he say? Well, he says at minute 27, it's 1 hour-long presentation, half of which is epigenetics, he says factors which influence epigenetics are things like alcohol, tobacco use, stress, exercise, nutrition, chronic disease. All of the things that we've been talking about here. All the things that we know that science has proven. But now, we have the Chief Medical Director of one of the largest reinsurance companies in the world saying this. We're excited. This is validation of what we've been saying all along. He's announcing it to the global life insurance industry. It's time to pay attention to these, folks, and it gets better. At minute 33, he cites the DNA methylation-based measures the biological age: meta-analysis predicting time to death, and that highlight is his, in the middle, I didn't make the red. Epigenetic age predicts all-cause mortality above and beyond chronological age and traditional risk factors. He is citing the UCLA patent-pending IP that we have exclusively licensed for the life insurance, global life insurance industry. And the authors, he's using this in permission with the editors, publishers, the authors, our own Chief Science Officer, Dr. Brian Chen and Dr. Horvath. So there you go. That's validation and we're on our way.

So this is a slide that I showed the last quarterly call. Life Epigenetics, a wholly-owned subsidiary of GWG. Again, we've been working on epigenetic testing, the all-cause mortality test, that is the UCLA license. That's exactly what Dr. Zimmerman was referring to. We've got a smoking test. We've got an alcohol test. We're commercializing other test all using epigenetic signatures that many of them now, these are our own proprietary tests to indicate and see the health and wellness of the underlying individual.

We talked about commercializing these tests in Q4, I'm going to kind of push that back a little bit. Part of what was due to a pilot that we had scheduled, which is since on hold as well. The carrier we were going to execute that pilot with was not the right partner for us, and so we're looking for another partner to execute this pilot with that will support our goals, on which I'll touch on here on a second.

That budget that we'll spend, again, budget in large part in 2018, $5 million, was -- had to do with the pilot. Again, the budget, you should think about our commitment to this in a light of the $25 million that our board has now authorized to spend against this opportunity.

So what are we going to spend it against. Well, let me restate our goals, and I think it's, in many ways, is much simpler. Our goal really, at this point, is what we believe is we can replicate the underwriting risk classifications with epigenetic signatures, which means we can get to basically, a paramedical underwriting, risk classification with an epigenetic signature.

So we can look at someone's epigenetic signature and put them in a standard or super preferred rated risk classification. We think this is a really exciting opportunity, and we don't see any reason why things won't pan out this way. After all, the epigenetic signature can tell you if you smoke, you drink, you exercise. If you do all these things, we should be able to find the signatures that appropriately relate to these risk classifications as well.

Our goal will be to, again, look for the correlation. A strong relationship or a weak relationship between a particular signature and another rating risk class. We are looking for the one on the left, the strong relationship. I fully expect by November call, I'll be able to show you plots on the graph of individuals who we have brought through a paramedical life insurance underwriting and tell you if we've been able to correlate specific epigenetic signatures for these various risk classes. So something to stay tuned for and wait in eager anticipation in November when we do our next call. So that's what we're shooting for. It will be a big deal as we can pull that graph to the left.

So introducing YouSurance. I mentioned on our last call the fact that we're going to launch a digital MGA, a digital managing general agency, and we have. It is at www.yousurance.com. This is a fully licensed operational digital managing general agency. We're building up this digital MGA with some great partners that include Steve Gerber, thank you. Steve Gerber, former founder of SelectQuote, and some really experienced insurance guys who are now getting behind this.

YouSurance introduces step-change technology into the life insurance industry. It's our way in which to actually do it. So YouSurance has the capability of driving insurance applicants for our pilot and we intend to develop a white-labeled life insurance product branded YouSurance with a carrier partner. And we intend to take that YouSurance product and sell it through the traditional insurance distribution hierarchy. The same distribution hierarchy that we work with today. That same sales infrastructure that we have in place today. So things -- objects may be closer than they might otherwise appear is kind of the long and short of it.

So as we look forward in concluding my remarks anyways at Q2 and into the future, we are leveraging our infrastructure. We're leveraging -- we're going to leverage our new balance sheet, not leverage in the kind of leverage that Bill doesn't like, but leveraging it in terms of our operational resources to achieve our goals and objectives. We're doing this with an ever-growing and experienced management team, both the team here at GWG and the folks at BEN.

We are focused on sales and distribution and with products that solve problems. And these products are for large addressable markets, whether its the secondary market, whether its liquidity products for investors in the illiquid products, whether its life insurance that can circumvent the messy paramedical underwriting process. These are really exciting things to be working on here at GWG, and we expect our success to provide returns to our shareholders. Of course, not to mention the special dividend for those shareholders who have been sticking with us for -- from inception.

So with that, I'm going to go to the Q&A. And I thank everyone for your attention, support and patience. And remember what a mind can conceive, a person can achieve. So with that, we'll get over to the Q&A, I'll turn it over to Dan or Sarah.


Dan Callahan, GWG Holdings, Inc. - Director of Communication [6]


Sarah, our operator. Can you open the Q&A?


Questions and Answers


Operator [1]


(Operator Instructions) And I don't see any raised hands at this time, but I will keep an eye out.


Dan Callahan, GWG Holdings, Inc. - Director of Communication [2]


We do have a question that came in on the chat, the text question. And the question is, it's actually what steps remain in the fourth quarter to finalize the BEN transaction.


Jon R. Sabes, GWG Holdings, Inc. - Chairman & CEO [3]


Yes. So the question is what step needs to happen before we close the final closing and really, it has to do with the delivery of our proxy, final proxy statement to the SEC. And that requires us to kind of conclude some -- the audit of BEN, which we expect in end of September. And with that, we'll be able to file our final proxy and do the final close. So that's really all that stands in the way, and yes.


Operator [4]


We still do not have any raised hands.


Jon R. Sabes, GWG Holdings, Inc. - Chairman & CEO [5]


Okay. How exactly is YouSurance going to change the insurance application process is the question.

Great. I don't know if it's going to change the application. What I think, it'll change the underwriting process. Again, and this is kind of the, to me, the most exciting opportunity I've had, BGAs in this office and got the chance to present and talk to them. If you think about it, life insurance, 90% of life insurance is still sold by insurance agents. And probably 50% of the insurance that they sell is required to go through what we call paramedical underwriting. That paramedical underwriting can take anywhere from 6 to 8 weeks. And it requires a nurse to visit the insured, collect blood, collect urine, potentially get medical records and a very long drawn out process. Not to mention, not a great experience for the customer. We think that if we can match the epigenetic signature to the same paramedical underwriting risk classifications through the collection of saliva, we can reduce that underwriting time to 10 days. So you're really talking about a dramatic change in the -- about the time and how you collect your underwriting data. So we think that by creating a Yousurance product that has an underwriting process that collects saliva that can turnaround in 10 days, that product will be highly marketable and saleable inside the insurance distribution when all the other products have paramedical underwriting that requires 6 to 8 weeks.

Question is, does the YouSurance potentially diminish the future typical writing life agent today?

No, I don't think so at all. In fact, on the contrary, I think the YouSurance is the -- will make the agent relevant again. And it'll make insurance great again, and that's the promise anyways. The digital MGA isn't -- we don't really think about selling or distributing the insurance through the web, although you'd be able to get the insurance through the web, but really, as I said, our main goal is to bring an insurance product that is easier, faster for the agent to write with the client. And therefore, make the agent's opportunity to write that business better. I believe the statistic we commonly saw quoted is agents lose 25% of their insurance sales in between the time they've made the sale and the paramedical underwriting is complete. So again, that would -- if we could solve for that, that's a massive uptick for the agent. And our hope is that we'll build in value-added features inside YouSurance, not only will you be able to tell where your ancestors came from but potentially, whether or not you have a particular risk of a disease category. So again, that agent stands to be much more value added to their clients. Overall, health and wellness and informed decision-making about financial planning and insurance purchasing.

Could you give some -- another question, could you give us some examples of the BEN products that will be distributed through that GWG channel, is a question.

Yes. I mean, I could -- one kind of example might be the opportunity to -- say, just a simple loan product. So for someone that may own a particular REIT product or an energy product, that's still a great asset. But for whatever reason, liquidity has not come as planned, but that liquidity is still expected. They could effectively margin the product and get some access to capital from that. Alternatively, another example might be if BEN were to list on a national exchange, they could simply contribute an illiquid, say, REIT investment in exchange for a publicly-traded master limited partnership interests. So kind of the functional equivalent. Maybe a 10-35 type of exchange and expanding your overall ownership in a pool. So that's a couple of examples. Great question.

Question here. Is the total cash invested $50 million or will the cash come in at the final closing?

The cash is closed, so the investment has occurred. The convertible preferred has been issued, so that is complete.

Question again, related -- or will BEN receive it?

No, BEN will not receive the dividend. This is, again, no common stock has been issued. A common stock does not get issued until the final closing. And so this dividend will be distributed to our current shareholders only.

We're just looking at more questions written in here, bear with us. A question here, can epigenetics detect if someone just got cancer, for example?

Again, maybe. Again, things start out as science fiction, they become science and then become reality. I think we're all on the idea that we're looking at things at a molecular level. And as you look smaller, sort of the notion is that cancer has been in your bloodstream a long time before you feel a nodule or a tumor or some symptom. And so finding it sooner on a molecular level, sorry, is, I think, everyone believes that that's a distinct possibility. And whether it's epigenetics or genetics or other molecular biomarkers, we -- I think you can expect that to occur in just about everyone's lifetime who's on this call.

Another question here. What is the coupon on the preferred stock to BEN?

There is no coupon attached to that preferred stock to BEN. That is just a convertible preferred that will convert into common. That's about as plain vanilla as you can get.

Okay. I think we're going to conclude our call. I want to, again, thank everyone who has been on a call or watch the webinar to -- for your support and interest in GWG. Again, the team here has never been more excited about the initiatives underway. Again, I hope that enthusiasm shows through, and we expect to deliver on the strategies that we have discussed today. So tune in for some other maybe mid-quarter webinars or calls that we might have or otherwise, we'll catch you in November. Have a great balance of this summer. Be safe and we'll see on the flip side. Bye-bye.


Operator [6]


Thanks for joining us, everyone. This officially concludes today's webcast. Have a great rest of your day.