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GWG HOLDINGS, INC. REPORTS RESULTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED DECEMBER 31, 2019

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DALLAS, March 31, 2020 (GLOBE NEWSWIRE) -- GWG Holdings, Inc. (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, announced on March 27, 2020 its financial and operating results in its Annual Report on Form 10-K for the fourth quarter and full year ended December 31, 2019.

Recent Corporate Events

  • On December 31, 2019, GWGH and The Beneficient Company Group, L.P. (Ben LP) and related entities (collectively, Ben) completed transactions that resulted in GWGH and Ben being consolidated for accounting and financial reporting purposes:
    ° GWGH acquired the right to appoint a majority of the board of directors of Beneficient Management, L.L.C., the general partner of Ben LP.
    ° The consolidation resulted in a balance sheet with $3.6 billion of total assets, $1.8 billion of total liabilities and $1.8 billion of total equity, including redeemable non-controlling interests.
    ° The $3.6 billion of consolidated total assets includes $2.4 billion of goodwill resulting from business combination accounting.
    ° GWGH recognized a pre-tax gain of $249.7 million related to the increase in the value of GWGH’s pre-existing investment in Ben, due to a one-time remeasurement arising from the change-in-control of Ben.
    ° All employees at GWGH and Ben are now under one corporate structure with the headquarters of the consolidated company in Dallas.

  • Corporate events occurring in Q1 2020:
    ° Reported life insurance policy realizations of $24.2 million from 18 policies through March 27, 2020.
    ° Given the uncertainty of the full financial and social impact of the COVID-19 pandemic, management has taken actions to ensure clients will have continued access to their investments and the Company’s services. As discussed in our recent press release, GWGH believes our portfolio of life insurance policies in conjunction with Ben’s diversified loan portfolio positions are well positioned to withstand periods of volatility and negative performance in the stock and bond markets.

Fourth Quarter and Full Year 2019 Financial and Operating Highlights

  • Reported 2019 net income of $91.2 million due to a one-time remeasurement of GWGH’s investment in Ben arising from the change-in-control, which resulted in basic and diluted earnings per share of $2.76 and $2.65, respectively. This is the first reported profit since GWGH began trading on Nasdaq in 2014.

  • Reported continued record realizations from our life insurance portfolio:
    ° Realized $44.2 million of face amount of policy benefits from 25 life insurance policies during the quarter.
    ° Total 2019 realizations of $125.1 million from 86 policies compared to $71.1 million from 62 policies for 2018.
    ° Ended the quarter with a life insurance portfolio of $2.0 billion in face amount of policy benefits consisting of 1,151 policies.

  • Continued developments raising capital to fund business through the L Bond investment product:
    ° L Bond sales for fourth quarter of $125.2 million.
    ° Hired five new sales executives with strong experience in the sales and marketing of alternative investments; added two new territories for the more than 120 independent broker-dealers and RIAs who offer GWGH’s investment products.

  • Continued shift in focus to investment in Beneficient and management of the existing $2 billion portfolio of life insurance policies and away from new life insurance policy acquisition. As part of that strategic shift, GWGH has ended our Life Care Exchange program for purchasing policies.

  • Reported total liquidity (cash, restricted cash, policy benefits receivable and fees receivable) of $151.5 million at December 31, 2019.

“2019 was a pivotal year for the organization,” said Murray Holland, GWGH’s Chief Executive Officer. “In consolidating the two companies’ financial statements, we have in place the key pieces we need to provide solutions to a growing market of investors who need liquidity. The expanded balance sheet and reduced debt ratios of the combined companies are important steps for GWGH, its investors, and clients.”

1. Financial & Operating Highlights

($ Thousands except per share information)

Q4 2019

Q4 2018

FY 2019

FY 2018

Revenue

$

20,838

$

(60,184

)

$

92,276

$

(390

)

Expenses

44,458

39,528

171,873

119,079

Income Tax Expense

57,933

57,933

Earnings (Loss) from Equity Method Investments

(3,706

)

18

(4,077

)

18

Gain on Consolidation of Equity Method Investment

249,716

249,716

Net Income (Loss)

164,457

(99,694

)

108,109

(119,451

)

Preferred Stock Dividends

4,137

4,306

16,943

16,663

Net Income Attributable to Common Shareholders

160,320

(104,000

)

91,166

(136,114

)

Per Share Data:

Net Income (Loss)1

4.56

(15.16

)

2.65

(22.32

)

Capital Raised (L Bonds)

125,158

97,883

403,397

370,203

Liquidity2

151,530

141,897

151,530

141,897

Life Insurance Portfolio3

2,020,973

2,047,992

2,020,973

2,047,992

Life Insurance Acquired3

995

107,478

97,316

440,569

Face Value of Matured Policies

44,221

20,991

125,148

71,090

TTM Benefits / Premiums4

196.0

%

135.0

%

166.0

%

135.0

%

(1) Per diluted common share outstanding

(2) Includes cash, restricted cash, policy benefits receivable and fees receivable

(3) Face amount of policy benefits

(4) The ratio of policy benefits realized to premiums paid on a trailing twelve month (TTM) basis

2. Revenue and Expense Discussion

Fourth Quarter 2019 vs. Fourth Quarter 2018:

  • Total revenue was $20.8 million in the current period, compared to ($60.2) million in the prior period primarily due to:
    ° A net charge of $87.1 million in Q4 2018 resulting from the adoption of a new life insurance portfolio valuation methodology.
    ° Unrealized gain on acquisition was $6.1 million lower, reflecting lower policy acquisition volume – $1.0 million of face value acquired in the current period compared to $30.1 million in the prior period.
    ° Net revenue recognized at matured policy event was $11.5 million higher due to increased realization of policy benefits – $44.2 million of life insurance policy benefits realized in the current period compared to $21.0 million in the prior period.
    ° Change in estimated probabilistic cash flows net of premium and fees was $7.0 million lower.
    ° Loss attributed to change in life expectancy evaluation was $2.3 higher.
    ° Net interest income on the Company’s commercial loan, exchange note, and Liquid Trust note was $2.4 million lower.
    ° Other interest income increased $0.2 million.

  • Total expenses were $45.1 million in the current period, compared to $39.5 million in the prior period primarily due to:
    ° Interest and fees increased by $6.0 million. This increase was driven by increased interest on L Bonds of $6.2 million as a result of additional amounts outstanding, partially offset by a decrease in interest on the Company’s senior credit facility of $0.2 million.
    ° Operating expenses decreased by $0.4 million. Compensation and professional expenses increased by $3.0 million and $0.8 million, respectively, primarily resulting from performance share unit expense and retention incentives associated with the Purchase and Contribution transaction (the strategic transaction with Ben which occurred in April 2019), as well as increases in legal, audit and other professional fees. Other expenses decreased by $4.2 million due to a decrease in bad debt expense related to a specific life insurance policy that we deemed uncollectable in 2018.

Full Year 2019 vs. Full Year 2018:

  • Total revenue was $92.3 million in the current period, compared to ($0.4) million in the prior period primarily due to:
    ° A net charge of $87.1 million in 2018 resulting from the adoption of a new life insurance portfolio valuation methodology.
    ° Net revenue recognized at matured policy event was $40.6 million higher, charges on life expectancy updates were $2.5 million lower, unrealized gain on acquisition was $21.1 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 $19.7 million lower as compared to the prior period.
    ° Interest income from the commercial loan, exchangeable note, and Liquid Trust promissory note increased $3.1 million and other income increased $0.2 million.

  • Total expenses were $171.9 million in the current period, compared to $119.1 million in the prior period primarily due to:
    ° Interest and fees increased by $34.7 million year over year. Outstanding L Bonds increased over this time period resulting in $22.7 million of additional interest expense, Seller Trust L Bonds, which were issued in August 2018, increased interest expense by $16.7 million and senior credit facility interest decreased by $4.7 million.
    ° Operating expenses increased by $18.8 million. Compensation and professional expenses increased by $10.9 million and $7.3 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.

3. Life Insurance Portfolio Statistics

Portfolio Summary:

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

$

2,020,973

Average face value per policy (in thousands)

$

1,756

Average face value per insured life (in thousands)

$

1,883

Weighted average age of insured (years)*

82.4

Weighted average life expectancy estimate (years)*

7.2

Total number of policies

1,151

Number of unique lives

1,073

Demographics

74% Male; 26% Female

Number of smokers

48

Largest policy as % of total portfolio face value

0.66

%

Average policy as % of total portfolio face value

0.09

%

Average annual premium as % of face value

3.3

%

* 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

(in thousands)

Number of
Policies

Policy
Benefits

Wtd. Avg.
LE (years)

95

101

17

$

34,402

1.5

%

1.7

%

2.2

90

94

145

283,442

12.6

%

14.0

%

3.3

85

89

238

556,090

20.7

%

27.5

%

5.0

80

84

251

463,047

21.8

%

22.9

%

7.7

75

79

224

347,952

19.4

%

17.2

%

9.8

70

74

205

264,496

17.8

%

13.1

%

11.0

60

69

71

71,544

6.2

%

3.6

%

11.4

Total

1,151

$

2,020,973

100.0

%

100.0

%

7.2

4. Life Insurance Policy Originations

Life Insurance Portfolio Activity:

Three Months Ended
December 31,

Years Ended
December 31,

2019

2018

2019

2018

Total policy benefits purchased (in thousands)

$

995

$

107,478

$

97,316

$

440,569

Life insurance policies purchased

2

85

83

318

Average policy benefit purchased (in thousands)

$

497

$

1,264

$

1,172

$

1,385

Direct policy benefits purchased (in thousands)

$

$

12,870

$

19,397

$

42,432

Direct insurance policies purchased

12

27

51

5. Ben’s Collateral Portfolio Information

As of December 31, 2019, Ben’s loan portfolio had exposure to 117 professionally managed alternative investment funds, comprised of 362 underlying investments, and approximately 96 percent of Ben’s loan portfolio was backed by investments in private companies. Ben’s loan portfolio diversification spans across these industry sectors, investment strategy types and geographic regions:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/e017fb4f-9d97-4557-bf93-8d60d8b324b4

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 December 31, 2019 ranged from 1998 to 2011.

6. Additional Information

Gain (Loss) on Life Insurance Policies (in thousands):

Three Months Ended
December 31,

Years Ended
December 31,

2019

2018

2019

2018

Change in estimated probabilistic cash flows(1)

$

15,025

$

19,961

$

67,186

$

75,444

Unrealized gain on acquisitions(2)

146

6,227

6,921

28,017

Premiums and other annual fees

(16,522

)

(14,417

)

(65,577

)

(54,087

)

Change in discount rates(3)(4)

Change in life expectancy evaluation(5)

(2,332

)

(2,332

)

(4,890

)

Change in life expectancy evaluation methodology(6)

(87,100

)

(87,100

)

Face value of matured policies

44,221

71,090

125,148

71,090

Fair value of matured policies

(24,436

)

(12,696

)

(56,026

)

(42,579

)

Gain (loss) on life insurance policies, net

$

16,102

$

(67,035

)

$

75,320

$

(14,105

)

(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.

(3) The discount rate applied to estimate the fair value of the portfolio of life insurance policies we own was 8.25% at the end of all periods presented.

(4) The discount rate of 8.25% is based on the “longest life expectancy” methodology, which was adopted at December 31, 2018.

(5) The change in fair value due to updating life expectancy estimates on certain life insurance policies in the portfolio.

(6) The change in fair value due to the adoption of the Longest Life Expectancy methodology on life insurance policies in portfolio, partially offset by the impact of a decrease in the discount rate.

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

September 30, 2015

$

878,882

$

4,482

$

25,313

175.7

%

December 31, 2015

944,844

31,232

26,650

117.2

%

March 31, 2016

1,027,821

21,845

28,771

75.9

%

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

%

Webcast/Conference Call Details

Management will host a webcast/conference call Tuesday, March 31, 2020 at 4:30 p.m. EDT 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/q42019webcastinvite.

After the webcast is completed, a replay of it can be accessed at http://get.gwgh.com/q42019webcast.

About GWG Holdings, Inc.

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 $2.02 billion in face value of life insurance policy benefits as of December 31, 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.

For more information about GWG Holdings, email info@gwgh.com or visit www.gwgh.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 Annual Report on Form 10-K filed with the Securities and Exchange Commission 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 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) 787-5744
dcallahan@gwgh.com

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

December 31,

2019

2018

ASSETS

Cash and cash equivalents

$

79,073

$

114,587

Restricted cash

20,258

10,849

Investment in life insurance policies, at fair value

796,039

747,922

Life insurance policy benefits receivable, net

23,031

16,461

Loan receivables

232,344

Fees receivable

29,168

Financing receivables from affiliates

67,153

184,769

Equity method investment

1,761

360,842

Other assets

28,374

45,437

Goodwill

2,358,005

TOTAL ASSETS

$

3,635,206

$

1,480,867

LIABILITIES & STOCKHOLDERS’ EQUITY

LIABILITIES

Senior credit facility with LNV Corporation

$

174,390

$

148,978

L Bonds

926,638

651,403

Seller Trust L Bonds

366,892

366,892

Other borrowings

153,086

Interest and dividends payable

16,516

18,555

Deferred revenue

41,444

Accounts payable and accrued expenses

27,836

13,981

Deferred tax liability

57,923

13,981

TOTAL LIABILITIES

1,764,725

1,199,809

Redeemable non-controlling interests

1,269,654

STOCKHOLDERS’ EQUITY

REDEEMABLE PREFERRED STOCK

(par value $0.001; shares authorized 100,000; shares outstanding 84,636 and 97,524; liquidation preference of $85,130 and $98,093 as of December 31, 2019 and 2018, respectively)

74,023

86,910

SERIES 2 REDEEMABLE PREFERRED STOCK

(par value $0.001; shares authorized 150,000; shares outstanding 147,164 and 148,359; liquidation preference of $148,023 and $149,225 as of December 31, 2019 and 2018, respectively)

127,868

129,063

COMMON STOCK

(par value $0.001; shares authorized 210,000,000; shares issued and outstanding 30,533,793 as of December 31, 2019 and 33,018,161 as of December 31, 2018)

33

33

Common stock in treasury, at cost, 2,500,000 shares as of December 31, 2019

(24,550

)

Additional paid-in capital

233,108

249,662

Accumulated deficit

(76,501

)

(184,610

)

TOTAL GWG HOLDINGS STOCKHOLDERS’ EQUITY

333,979

281,058

Non-controlling interests

266,848

TOTAL STOCKHOLDERS’ EQUITY

600,827

281,058

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY

$

3,635,206

$

1,480,867

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

Three Months Ended

Years Ended

December 31,
2019

December 31,
2018

December 31,
2019

December 31,
2018

REVENUE

Gain (loss) on life insurance policies, net

$

16,101

$

(67,035

)

$

75,320

$

(14,104

)

Interest and other income

4,737

6,851

16,956

13,714

TOTAL REVENUE

20,838

(60,184

)

92,276

(390

)

EXPENSES

Interest expense

31,093

25,125

114,844

80,136

Employee compensation and benefits

7,224

4,880

28,309

17,407

Legal and professional fees

2,561

1,790

12,824

5,541

Other expenses

3,580

7,732

15,896

15,995

TOTAL EXPENSES

44,458

39,527

171,873

119,079

INCOME (LOSS) BEFORE INCOME TAXES

(23,620

)

(99,711

)

(79,597

)

(119,469

)

INCOME TAX EXPENSE (BENEFIT)

57,933

57,933

NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT

(81,553

)

(99,711

)

(137,530

)

(119,469

)

Earnings (loss) from equity method investment

(3,706

)

18

(4,077

)

18

Gain on consolidation of equity method investment

249,716

249,716

NET INCOME (LOSS)

164,457

(99,693

)

108,109

(119,451

)

Preferred stock dividends

4,137

4,304

16,943

16,663

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

160,320

$

(104,000

)

$

91,166

$

(136,114

)

NET INCOME (LOSS) PER COMMON SHARE

Basic

$

4.85

$

(15.16

)

$

2.76

$

(22.32

)

Diluted

$

4.56

$

(15.16

)

$

2.65

$

(22.32

)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic

33,033,536

6,861,799

33,016,007

6,098,208

Diluted

35,135,436

6,861,799

35,219,442

6,098,208