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GWG Holdings, Inc. Reports Results for the Second Quarter Ended June 30, 2020

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  • GWGH

Ben Collateral Portfolio

Ben's loan portfolio had exposure to 120 professionally managed alternative investment funds.
Ben's loan portfolio had exposure to 120 professionally managed alternative investment funds.
Ben's loan portfolio had exposure to 120 professionally managed alternative investment funds.

DALLAS, Aug. 17, 2020 (GLOBE NEWSWIRE) -- Today, GWG Holdings, Inc. (Nasdaq: GWGH), an innovative financial services firm based in Dallas, announced its financial and operating results for the second quarter ended June 30, 2020. The results reflect consolidated accounting and financial reporting of GWGH and The Beneficient Company Group, L.P. and its consolidated subsidiaries (collectively, Beneficient). GWGH and Beneficient are referred to collectively as the Company.

Recent Corporate Developments

  • Despite the uncertainty surrounding the novel coronavirus pandemic (COVID-19), and although a substantial majority of our employees continue to work remotely, we have maintained our operations at or near normal levels. The Company continues to raise capital, receive interest income and insurance policy benefits, pay interest income and dividends and otherwise meet its ongoing obligations.
    • A survey of advisors conducted by GWGH in June found high satisfaction in its communication about the Company’s products and services during these uncertain times.

  • GWGH closed its publicly registered $1 billion L Bond offering in July 2020 and began raising capital under a new $2 billion L Bond offering.

  • Effective June 29, 2020, the Company was again included in the Russell 2000® Index of small-cap U.S. stocks, an important bellwether for the U.S. economy.

  • The Company hired key sales executives Michele Drummond as Vice President of National Accounts in the western half of the U.S. and Ben Hilgers as Regional Vice President for Florida and Puerto Rico.

  • Beneficient launched a liquidity platform for an untapped market of mid-to-high-net-worth individuals, small-to-midsized institutional investors and family offices that own alternative assets. Beneficient’s product will enable these investors to access simple, rapid and cost-effective liquidity solutions.
    • Beneficient’s trust charter applications are pending approval by the Texas Department of Banking. Beneficient has closed a limited number of transactions to date but intends to significantly expand its operations if and when the trust charters are issued.

  • On July 6, 2020, GWGH filed documents with the SEC seeking authority to have the option to effect an exchange of its equity securities for securities issued by GWGH or one or more of its subsidiaries. The Company believes this proposed change is a potential avenue to create additional organizational efficiencies for the Company while at the same time enabling it to grow the consolidated balance sheet in a prudent and sustainable manner, and in turn create additional potential value for its shareholders.

  • Effective July 15, 2020, GWGH entered into a Preferred Series C Unit Purchase Agreement with Beneficient that will allow GWGH to make additional capital contributions to Beneficient as Beneficient continues to expand its operations.

  • On July 29, 2020, GWGH, represented by its Special Committee, approved a transaction by which GWGH agreed to convert its promissory note with certain LiquidTrust borrowers and any related accrued interest, into a $75.0 million capital account of Preferred C interests in BCH. The outstanding balance of the promissory note on June 30, 2020, with accrued and unpaid interest thereon, was $69.4 million.

  • On August 13, 2020, GWG DLP Funding V, LLC (DLP V), a wholly owned subsidiary of GWG Life, LLC, and Beneficient Capital Company, LLC (BCC), a wholly owned subsidiary of Beneficient, together with BCC’s senior lender entered into a credit agreement amending and restating the terms and conditions regarding Beneficient’s current credit agreement, which had approximately $124.5 million in senior debt outstanding. The Second Amended and Restated Credit Agreement provides for, among other things, DLP V’s assumption of the senior debt following the occurrences of certain conditions, including Beneficient’s receipt of the trust charters currently pending before the Texas Department of Banking.

Second Quarter 2020 Financial and Operating Highlights

  • Reported second quarter 2020 net loss of $18.1 million, compared to a net loss of $25.6 million in the second quarter of 2019:
    • GWGH’s investment in Beneficient was accounted for as an equity method investment prior to the change-of-control on December 31, 2019, and the second quarter of 2020 includes the consolidated results of Beneficient.

  • Reported total assets of $3.7 billion as of both June 30, 2020, and March 31, 2020.

  • Reported continued strong life insurance portfolio performance:
    • Realized $39.9 million of face amount of policy benefits from 29 life insurance policies during the second quarter of 2020, compared to $23.0 million from 19 life insurance policies during the second quarter of 2019.
    • Ended the quarter with a life insurance portfolio of $2.0 billion in face amount of policy benefits consisting of 1,102 policies.

  • Reported continued success raising capital through the L Bond investment product with $93.5 million of L Bond sales in the second quarter of 2020.

  • Total liquidity (cash, restricted cash, policy benefits receivable and fees receivable) increased to $219.7 million on June 30, 2020, compared to $188.7 million on March 31, 2020.

“This past quarter marked a significant milestone as Beneficient launched a first-of-its-kind liquidity platform to serve the large, growing and untapped market of mid-to-high-net-worth individuals, small-to-midsized institutional investors and family offices seeking simple, rapid and cost-effective liquidity solutions for their alternatives assets,” said Murray Holland, GWGH’s Chief Executive Officer. “The fact that our investment sales have been consistently strong during this period, while so many have operated under stay-at-home orders and other restrictions, demonstrates the confidence we have earned from a very active network of advisors and places us in a robust position for the future.”

1. Financial & Operating Highlights

($ Thousands except per share information)

Q2 2020

Q2 2019

YTD 2020

YTD 2019

Revenue

$

68,789

$

24,010

$

102,346

$

49,227

Expenses

68,720

45,941

192,770

83,845

Income Tax Benefit

(8,550

)

(23,057

)

Income (Loss) from Equity Method Investments

(1,318

)

600

(2,848

)

(1,327

)

Net Income (Loss), including Income (Loss) from Equity Method Investment

7,301

(21,331

)

(70,215

)

(35,945

)

Loss (Income) Attributable to Noncontrolling Interests

(21,723

)

10,361

Preferred Stock Dividends

3,714

4,278

7,666

8,574

Net Loss Attributable to Common Shareholders

(18,136

)

(25,609

)

(67,520

)

(44,519

)

Per Share Data:

Net Loss1

(0.59

)

(0.78

)

(2.21

)

(1.35

)

Capital Raised from L Bonds

93,519

45,241

202,572

171,227

Liquidity2

219,692

82,461

219,692

82,461

Life Insurance Portfolio3

1,960,826

2,088,445

1,960,826

2,088,445

Life Insurance Acquired3

12,955

93,166

Face Value of Matured Policies

39,889

22,998

65,391

53,457

TTM Benefits / Premiums4

205.1

%

138.6

%

205.1

%

138.6

%

1. Per diluted common share outstanding
2. Includes cash, restricted cash, policy benefits receivable and fees receivable as of the end of the period presented
3. Face amount of policy benefits as of the end of the period presented.
4. The ratio of policy benefits realized to premiums paid on a trailing twelve month (TTM) basis.

2. Revenue and Expense Discussion
Second Quarter 2020 vs. Second Quarter 2019:

  • Total revenue was $68.8 million in the current period, compared to $24.0 million in the prior period primarily due to:
    • $36.3 million of other income recognized by Beneficient in the second quarter of 2020 as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient.
    • $11.3 million of interest income added as a result of the consolidation of Beneficient.
    • $4.8 million of trust services revenues added as a result of the consolidation of Beneficient.
    • The aforementioned increases were partially offset by $5.1 million lower net gain on life insurance policies due to no gain on policy acquisitions, higher premiums paid and maturities of policies with a higher cumulative cost basis

  • Total expenses were $68.7 million in the current period, compared to $45.9 million in the prior period primarily due to:
    • $8.7 million higher interest expense due to higher average outstanding balances of L Bonds, senior credit facility and Beneficient debt.
    • Higher employee compensation and benefits ($5.0 million), legal and professional fees ($2.9 million) and other expenses ($6.2 million) primarily due to the consolidation of Beneficient. Other expenses include Beneficient’s provision for loan losses of $7.2 million for the second quarter 2020.

Six Months Ended June 30, 2020 vs. Six Months Ended June 30, 2019:

  • Total revenue was $102.3 million in the current period, compared to $49.2 million in the prior period primarily due to:
    • $36.3 million of other income recognized by Beneficient in the second quarter of 2020 as a result of the forfeiture of vested equity-based compensation related to one former director of Beneficient.
    • $23.5 million of interest income added as a result of the consolidation of Beneficient.
    • $9.9 million of trust services revenues added as a result of the consolidation of Beneficient.
    • The aforementioned increases were partially offset by $12.2 million lower net gain on life insurance policies due to no gain on policy acquisitions, higher premiums paid and maturities of policies with a higher cumulative cost basis.

  • Total expenses were $192.8 million in the current period, compared to $83.8 million in the prior period primarily due to:
    • Employee compensation and benefits increased by $77.6 million primarily due to the inclusion of Beneficient's operations, including the recognition of $73.3 million of non-cash, equity-based compensation expense under Beneficient's equity incentive plans.
    • $17.6 million higher interest expense due to higher average outstanding balances of L Bonds, senior credit facility and Beneficient debt.
    • Higher legal and professional fees ($6.1 million) and other expenses ($7.6 million) primarily due to the consolidation of Beneficient. Other expenses include Beneficient’s provision for loan losses of $7.9 million for the six months ended June 30, 2020.

3. Beneficient’s Collateral Portfolio Information
As of June 30, 2020, Beneficient’s loan portfolio had exposure to 120 professionally managed alternative investment funds, comprised of 368 underlying investments, and approximately 87 percent of Beneficient’s loan portfolio was collateralized by investments in private companies. Beneficient’s loan portfolio diversification spans across these industry sectors, geographic regions and exposure types:

A graphic accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/996c9c8d-7574-4345-b370-ec3e48b3e2a4

Assets in the collateral portfolio consist primarily of interests in alternative investment vehicles (also referred to as funds) that are managed by a group of U.S. and non-U.S. based alternative asset management firms that invest in a variety of financial markets and utilize a variety of investment strategies. The vintages of the funds in the collateral portfolio as of June 30, 2020 ranged from 1998 to 2016.

4. Life Insurance Portfolio Statistics as of and for the quarter ended June 30, 2020
Portfolio Summary:

Total life insurance portfolio face value of policy benefits (in thousands)

$

1,960,826

Average face value per policy (in thousands)

$

1,779

Average face value per insured life (in thousands)

$

1,915

Weighted average age of insured (years)

82.7

Weighted average life expectancy estimate (years)

6.9

Total number of policies

1,102

Number of unique lives

1,024

Demographics

74% male; 26% female

Number of smokers

45

Largest policy as % of total portfolio face value

0.7

%

Average policy as % of total portfolio

0.1

%

Average annual premium as % of face value

3.6

%

Distribution of Policies and Benefits by Current Age of Insured

Percentage of Total

Weighted

Min
Age

Max
Age

Number
of Policies

Policy
Benefits

Number of
Policies

Policy
Benefits

Average
LE
(Years)

95

101

24

$

45,602

2.2

%

2.3

%

2.1

90

94

144

286,510

13.0

%

14.6

%

3.1

85

89

237

550,928

21.5

%

28.1

%

4.9

80

84

229

408,437

20.8

%

20.8

%

7.3

75

79

218

380,759

19.8

%

19.4

%

9.8

70

74

197

229,052

17.9

%

11.7

%

10.8

60

69

53

59,538

4.8

%

3.1

%

11.2

Total

1,102

$

1,960,826

100.0

%

100.0

%

6.9

5. Additional Information
Gain (Loss) on Life Insurance Policies (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Change in estimated probabilistic cash flows(1)

$

15,349

$

17,122

$

33,200

$

34,253

Unrealized gain on acquisitions(2)

1,844

6,303

Premiums and other annual fees

(17,626

)

(16,004

)

(34,825

)

(31,836

)

Face value of matured policies

39,889

22,998

65,391

53,457

Fair value of matured policies

(22,824

)

(6,030

)

(34,533

)

(20,751

)

Gain on life insurance policies, net

$

14,788

$

19,930

$

29,233

$

41,426

___________________________________
(1) Change in fair value of expected future cash flows relating to the 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. There were no policy acquisitions during the three or six months ended June 30, 2020.

Policy Benefits Realized and Premiums Paid (TTM):

Quarter End Date

Portfolio Face
Amount
(in thousands)

12-Month
Trailing
Benefits
Realized
(in thousands)

12-Month
Trailing
Premiums
Paid
(in thousands)

12-Month
Trailing
Benefits/Premium
Coverage
Ratio

June 30, 2016

1,154,798

30,924

31,891

97.0

%

September 30, 2016

1,272,078

35,867

37,055

96.8

%

December 31, 2016

1,361,675

48,452

40,239

120.4

%

March 31, 2017

1,447,558

48,189

42,753

112.7

%

June 30, 2017

1,525,363

49,295

45,414

108.5

%

September 30, 2017

1,622,627

53,742

46,559

115.4

%

December 31, 2017

1,676,148

64,719

52,263

123.8

%

March 31, 2018

1,758,066

60,248

53,169

113.3

%

June 30, 2018

1,849,079

76,936

53,886

142.8

%

September 30, 2018

1,961,598

75,161

55,365

135.8

%

December 31, 2018

2,047,992

71,090

52,675

135.0

%

March 31, 2019

2,098,428

87,045

56,227

154.8

%

June 30, 2019

2,088,445

82,421

59,454

138.6

%

September 30, 2019

2,064,156

101,918

61,805

164.9

%

December 31, 2019

2,020,973

125,148

63,851

196.0

%

March 31, 2020

2,000,680

120,191

65,224

184.3

%

June 30, 2020

1,960,826

137,082

66,846

205.1

%

Webcast Details

Management will host a webcast Monday, August 17, 2020 at 4:30 p.m. EDT to discuss financial and operating results. The webcast will give viewers audio and access to PowerPoint slides that illustrate points made during the presentation. To register for the webcast, go to http://get.gwgh.com/q22020webcastinvite.

After the webcast is completed, a replay can be accessed at http://get.gwgh.com/q22020webcast.

About GWG Holdings, Inc.

GWG Holdings, Inc. (Nasdaq: GWGH) is an innovative financial services firm based in Dallas, Texas that is a leader in providing investments that are non-correlated to the traded markets, and unique liquidity solutions and services for the owners of illiquid investments. Through its subsidiaries, The Beneficient Company Group, L.P. and GWG Life, LLC, GWGH owns and manages a diverse portfolio of alternative assets that, as of June 30, 2020, included $2.0 billion in life insurance policy benefits, and exposure to a diversified and growing loan portfolio secured by 120 professionally managed alternative investment funds.

For more information about GWG Holdings, email info@gwgh.com or visit www.gwgh.com. For more information about Beneficient, email askben@beneficient.com or visit www.trustben.com.

Cautionary Statement Regarding Forward-Looking Statements

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, including our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on August 14, 2020, and our Annual Report on Form 10-K filed with the SEC on March 27, 2020. 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 SEC. 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) 787-5744
dcallahan@gwgh.com

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

June 30,
2020 (unaudited)

December 31,
2019

ASSETS

Cash and cash equivalents

$

149,233

$

79,073

Restricted cash

19,059

20,258

Investment in life insurance policies, at fair value

794,706

796,039

Life insurance policy benefits receivable, net

19,789

23,031

Loans receivable, net of unearned income

218,448

232,344

Allowance for loan losses

(7,900

)

Loans receivable, net

210,548

232,344

Fees receivable

31,611

29,168

Financing receivables from affiliates

69,428

67,153

Other assets

40,142

30,135

Goodwill

2,384,121

2,358,005

TOTAL ASSETS

$

3,718,637

$

3,635,206

LIABILITIES & STOCKHOLDERS’ EQUITY

LIABILITIES

Senior credit facility with LNV Corporation

$

203,578

$

174,390

L Bonds

1,072,973

926,638

Seller Trust L Bonds

366,892

366,892

Other borrowings

152,118

153,086

Interest and dividends payable

23,284

16,516

Deferred revenue

37,858

41,444

Accounts payable and accrued expenses

23,457

27,836

Deferred tax liability, net

33,674

57,923

TOTAL LIABILITIES

1,913,834

1,764,725

Redeemable noncontrolling interests

1,264,031

1,269,654

STOCKHOLDERS’ EQUITY

REDEEMABLE PREFERRED STOCK

(par value $0.001; shares authorized 100,000; shares outstanding 62,986 and 84,636; liquidation preference of $63,354 and $85,130 as of June 30, 2020 and December 31, 2019, respectively)

52,373

74,023

SERIES 2 REDEEMABLE PREFERRED STOCK

(par value $0.001; shares authorized 150,000; shares outstanding 144,325 and 147,164; liquidation preference of $145,167 and $148,023 as of June 30, 2020 and December 31, 2019, respectively)

125,029

127,868

COMMON STOCK

(par value $0.001; shares authorized 210,000,000; shares issued and outstanding 30,537,481 and 30,533,793 as of June 30, 2020 and December 31, 2019, respectively)

33

33

Common stock in treasury, at cost (2,500,000 shares as of both June 30, 2020 and December 31, 2019)

(24,550

)

(24,550

)

Additional paid-in capital

225,537

233,106

Accumulated deficit

(136,355

)

(76,501

)

TOTAL GWG HOLDINGS STOCKHOLDERS’ EQUITY

242,067

333,979

Noncontrolling interests

298,705

266,848

TOTAL STOCKHOLDERS’ EQUITY

540,772

600,827

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

$

3,718,637

$

3,635,206

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

REVENUE

Gain on life insurance policies, net

$

14,788

$

19,930

$

29,233

$

41,426

Interest income

12,671

3,881

26,660

7,337

Trust services revenues

4,829

9,856

Other income

36,501

199

36,597

464

TOTAL REVENUE

68,789

24,010

102,346

49,227

EXPENSES

Interest expense

37,142

28,487

73,013

55,462

Employee compensation and benefits

11,840

6,794

89,544

11,948

Legal and professional fees

7,643

4,722

13,806

7,669

Provision for loan losses

7,200

7,900

Other expenses

4,895

5,938

8,507

8,766

TOTAL EXPENSES

68,720

45,941

192,770

83,845

INCOME (LOSS) BEFORE INCOME TAXES

69

(21,931

)

(90,424

)

(34,618

)

INCOME TAX BENEFIT

(8,550

)

(23,057

)

NET INCOME (LOSS) BEFORE LOSS FROM EQUITY METHOD INVESTMENT

8,619

(21,931

)

(67,367

)

(34,618

)

Income (loss) from equity method investment

(1,318

)

600

(2,848

)

(1,327

)

NET INCOME (LOSS)

7,301

(21,331

)

(70,215

)

(35,945

)

Net loss (income) attributable to noncontrolling interests

(21,723

)

10,361

Less: Preferred stock dividends

3,714

4,278

7,666

8,574

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(18,136

)

$

(25,609

)

$

(67,520

)

$

(44,519

)

NET LOSS PER COMMON SHARE

Basic

$

(0.59

)

$

(0.78

)

$

(2.21

)

$

(1.35

)

Diluted

$

(0.59

)

$

(0.78

)

$

(2.21

)

$

(1.35

)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic

30,536,830

33,011,603

30,535,811

32,998,246

Diluted

30,536,830

33,011,603

30,535,811

32,998,246