MINNEAPOLIS, Nov. 08, 2016 (GLOBE NEWSWIRE) -- GWG Holdings, Inc. (Nasdaq: GWGH ), a specialty finance company and a leading purchaser in the life insurance secondary market, today announced its financial results for the third quarter ended September 30, 2016.
Highlights for the Three Months Ended September 30, 2016
- GAAP Financial Information
- Total revenue of $13.9 million, up over 68% from the prior year
- Net loss attributable to common shareholders of $2.6 million, or $0.50 per basic and fully diluted share, respectively
- Non-GAAP Financial Information 1
- Adjusted Non-GAAP net income of $7.6 million, or $1.28 per basic share 2
- Completed a new $172 million, 10-year credit facility, creating further capacity for growth of our business while improving the funding profile of our balance sheet
- Increased the total number of financial advisors able to sell GWG’s investment products to approximately 4,300
- Raised a record $83 million of debt & equity capital from GWG’s investment product offerings
- Increased the number of appointed agents able to source life insurance policies through GWG’s Appointed Agent Program to more than 2,900
- Purchased $122.6 million in face value of policy benefits, the third consecutive quarter of growth in excess of $100 million
- GWG’s direct-origination channel – purchases of life insurance policies through independent financial advisors and life insurance agents – accounted for 34% of total purchases
- Ended the quarter with a portfolio of life insurance of $1.27 billion in face value of policy benefits covering 562 unique lives; a net sequential growth of $117.3 million
- Recognized $5.3 million in policy benefits from four life insurance policies during the quarter
- Recognized policy benefits in each of 10 consecutive calendar months through October 2016, a record for the company and further evidence of increasing cash flow stability
- Reported a total liquidity position of $117 million at November 2, 2016 3
- Recently exercised an option with University of California, Los Angeles (UCLA) for the exclusive license of “DNA Methylation Based Predictor of Mortality” technology
- Launched new website www.gwgh.com in early November to better communicate our investment products and long-term corporate strategy
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(1) See non-GAAP Financial Measures below. (2) We calculate adjusted non-GAAP net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value measurements required by GAAP. We net this actuarial gain against our adjusted costs during the same period to calculate adjusted non-GAAP net income. (3) Includes cash, cash equivalents, restricted cash, policy benefits receivable, if any, and amounts available, if any, on our senior credit facilities
“We executed on numerous key objectives this quarter, which include securing a new long term credit facility; raising a record amount of capital; purchasing policies from our direct origination sources; recruiting increasing numbers of life insurance agents to send us policies directly for acquisition; achieving DTC closings for all of our investment products; acquiring new technology that promises to improve our underwriting capabilities; and launching a new corporate website that highlights our strategic plans for our long-term future success in the insurance marketplace,” commented Jon Sabes, GWG Holdings’ Chief Executive Officer. “The groundwork completed this quarter continues to improve all aspects of our business that are foundational to our future growth and profitability.”
Third Quarter 2016 Financial Summary
Total revenue for the third quarter ended September 30, 2016 was $13.9 million, as compared to $8.3 million for the same period in 2015. Realized gain from policy benefits for the third quarter was $4.2 million, as compared to $0.3 million for the same period in 2015. The Company recognized $5.3 million of life insurance policy benefits in the third quarter, as compared to $0.4 million in the same period of 2015. Total revenue from new policy purchases during the third quarter was $11.7 million, as compared to $7.4 million for the same period in 2015.
Total operating expenses for the third quarter of 2016 were $18.3 million, as compared to $14.0 million for the same period in 2015. The increase was due to additional interest expense as a result of higher debt balances outstanding and greater spending across many of our functional areas as we continue to experience record growth in our financial products distribution platform and in our proprietary life insurance policy origination channels.
“We continue to produce record results against our key operating targets, which we believe sets the stage for consistent profitability and growth in the value of the Company,” said William Acheson, GWG Holdings’ Chief Financial Officer. “Additionally, we see the continued emergence of the secondary market for life insurance as a viable and valuable alternative for seniors seeking post retirement financial solutions,” Acheson continued. “The combination of operational execution, a large and emerging market and the new long term credit facility that we secured during the quarter, solidifies GWG’s position as the market leader.”
Gain on Life Insurance Policies
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | ||||||||||
| Change in est. probabilistic cash flows | $ | 14,303,000 | $ | 7,777,000 | $ | 41,459,000 | $ | 27,601,000 | |||||
| Premiums and other fees paid | (11,784,000 | ) | (6,603,000 | ) | (29,225,000 | ) | (19,069,000 | ) | |||||
| Fair value of matured policies | (1,966,000 | ) | (149,000 | ) | (14,383,000 | ) | (14,909,000 | ) | |||||
| Change in life expectancy evaluation | (2,470,000 | ) | (2,319,000 | ) | (3,199,000 | ) | (3,202,000 | ) | |||||
| Change in discount rates | (462,000 | ) | 1,783,000 | 460,000 | 4,570,000 | ||||||||
| Unrealized gain on acquisitions | 11,668,000 | 7,423,000 | 29,509,000 | 12,546,000 | |||||||||
| Realized gain on maturities | 4,221,000 | 277,000 | 26,986,000 | 25,909,000 | |||||||||
| Gain on life insurance policies | $ | 13,510,000 | $ | 8,189,000 | $ | 51,607,000 | $ | 33,446,000 | |||||
Li f e Insurance Portfolio Summary
| Total portfolio face value of policy benefits | $ | 1,272,078,000 | ||
| Average face value per policy | $ | 2,035,000 | ||
| Average face value per insured life | $ | 2,263,000 | ||
| Weighted average age of insured (yrs.) | 81.8 | |||
| Weighted average life expectancy estimate (yrs.) | 6.8 | |||
| Total number of life insurance policies | 625 | |||
| Number of unique lives | 562 | |||
| Demographics | 73% Males; 27% Females | |||
| Number of smokers | 24 | |||
| Largest policy as % of total portfolio | 0.79 | % | ||
| Average policy as % of total portfolio | 0.16 | % | ||
| Average annual premium as % of face value | 3.33 | % | ||
D i stribution of Policies and Policy Benefits by Current Age of Insured
| Percentage of Total | ||||||||||||||||||
| Min Age | Max Age | Contracts | Contract Benefits | Wtd. Avg. Life Expectancy (yrs.) | Number of Contracts | Contract Benefits | ||||||||||||
| 90 | 96 | 55 | $ | 105,815,000 | 2.4 | 8.8 | % | 8.3 | % | |||||||||
| 85 | 89 | 155 | $ | 331,989,000 | 4.8 | 24.8 | % | 26.1 | % | |||||||||
| 80 | 84 | 152 | $ | 385,904,000 | 6.7 | 24.3 | % | 30.3 | % | |||||||||
| 75 | 79 | 115 | $ | 251,466,000 | 9.2 | 18.4 | % | 19.8 | % | |||||||||
| 70 | 74 | 87 | $ | 120,791,000 | 9.8 | 13.9 | % | 9.5 | % | |||||||||
| 65 | 69 | 61 | $ | 76,113,000 | 10.1 | 9.8 | % | 6.0 | % | |||||||||
| Total | 625 | $ | 1,272,078,000 | 6.8 | 100.0 | % | 100.0 | % | ||||||||||
Life Insurance Portfolio Activity
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | ||||||||||
| Total policy benefits purchased | $ | 122,580,000 | $ | 72,965,000 | $ | 361,600,000 | $ | 129,515,000 | |||||
| Total life insurance policies purchased | 82 | 30 | 245 | 60 | |||||||||
| Average policy benefit purchased | $ | 1,495,000 | $ | 2,432,000 | $ | 1,476,000 | $ | 2,159,000 | |||||
| Direct 1 policy benefits purchased | $ | 14,958,000 | $ | 8,920,000 | $ | 34,511,000 | $ | 16,668,000 | |||||
| Direct 1 insurance policies purchased | 28 | 10 | 66 | 19 | |||||||||
(1) Purchases directly through financial advisors and life insurance agents without the involvement of a life settlement broker
Trailing 12 -Month Policy Benefits Recognized and Premiums Paid
| Quarter End Date | Portfolio Face Amount | 12-Month Trailing Policy Benefits Collected | 12-Month Trailing Policy Premiums Paid | 12-Month Trailing Benefits/Premium Coverage Ratio | ||||||||||
| June 30, 2014 | 784,652,000 | 6,300,000 | 22,598,000 | 27.9 | % | |||||||||
| September 30, 2014 | 787,964,000 | 4,300,000 | 23,121,000 | 18.6 | % | |||||||||
| December 31, 2014 | 779,099,000 | 18,050,000 | 23,265,000 | 77.6 | % | |||||||||
| March 31, 2015 | 754,942,000 | 46,675,000 | 23,786,000 | 196.2 | % | |||||||||
| June 30, 2015 | 806,274,000 | 47,125,000 | 24,348,000 | 193.6 | % | |||||||||
| 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 | % | |||||||||
Conference Call Details
Management will host a conference call today at 4:00 pm Eastern Time to discuss the Company's financial results. The conference call number for U.S. participants is (844) 423-9895 and the conference call number for participants outside the U.S. is (716) 247-5865. The conference ID number for both conference call numbers is 5575770. The call may also be accessed via webcast on the Company’s website at www.gwgh.com .
A replay of the call will be available through Tuesday, November 15, 2016 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (international), using the passcode 5575770.
About GWG Holdings, Inc.
GWG Holdings, Inc. (Nasdaq: GWGH ) is a specialty finance company and a leader in the life insurance secondary market. GWG is dedicated to creating a vibrant life insurance secondary market for the economic benefit of seniors with life insurance who are seeking post-retirement financial solutions, investors seeking yield derived from non-correlated assets, financial advisors seeking value-added products and services for their clients, and shareholders seeking to gain from the realization of this marketplace. As of September 30, 2016, GWG’s growing portfolio consisted of over $1.27 billion in face value of policy benefits. Since 2006, GWG has purchased over $2.2 billion in life insurance policy benefits and paid seniors more than $379 million for their life insurance.
For more information about GWG Holdings, email info@gwglife.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 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.
| GWG HOLDINGS, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, 2016 (unaudited) | December 31, 2015 | |||||||
| A S S E T S | ||||||||
| Cash and cash equivalents | $ | 18,773,828 | $ | 34,425,105 | ||||
| Restricted cash | 15,688,025 | 2,341,900 | ||||||
| Investment in life insurance contracts, at fair value | 477,585,100 | 356,649,715 | ||||||
| Secured MCA advances | 6,113,831 | - | ||||||
| Life insurance contract benefits receivable | 6,129,022 | - | ||||||
| Other assets | 3,131,107 | 2,461,045 | ||||||
| TOTAL ASSETS | $ | 527,420,913 | $ | 395,877,765 | ||||
| L I A B I L I T I E S & S T O C K H O L D E R S’ E Q U I T Y | ||||||||
| LIABILITIES | ||||||||
| Senior Credit Facilities | $ | 63,699,385 | $ | 63,279,596 | ||||
| Series I Secured Notes | 17,553,307 | 23,287,704 | ||||||
| L Bonds | 379,858,737 | 276,482,796 | ||||||
| Accounts payable | 2,442,449 | 1,517,440 | ||||||
| Interest payable | 13,633,640 | 12,340,061 | ||||||
| Other accrued expenses | 645,343 | 1,060,786 | ||||||
| Deferred taxes, net | 3,242,586 | 1,763,968 | ||||||
| TOTAL LIABILITIES | $ | 481,075,447 | $ | 379,732,351 | ||||
| STOCKHOLDERS’ EQUITY | ||||||||
| CONVERTIBLE PREFERRED STOCK | ||||||||
| (par value $0.001; shares authorized 40,000,000; shares outstanding 2,649,665 and 2,781,735; liquidation preference of $19,872,000 and $20,863,000 on September 30, 2016 and December 31, 2015, respectively) | 19,772,931 | 20,784,841 | ||||||
| REDEEMABLE PREFERRED STOCK | ||||||||
| (par value $0.001; shares authorized 100,000; shares outstanding 33,201 on September 30, 2016) | 33,176,600 | - | ||||||
| COMMON STOCK | ||||||||
| (par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,980,190 and 5,941,790 on September 30, 2016 and December 31, 2015) | 5,980 | 5,942 | ||||||
| Additional paid-in capital | 15,226,449 | 17,149,391 | ||||||
| Accumulated deficit | (21,836,494 | ) | (21,794,760 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 46,345,466 | 16,145,414 | ||||||
| TOTAL LIABILITIES & EQUITY | $ | 527,420,913 | $ | 395,877,765 | ||||
| GWG HOLDINGS, INC. AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | ||||||||||||||
| REVENUE | |||||||||||||||||
| Gain on life insurance contracts, net | $ | 13,509,755 | $ | 8,189,261 | $ | 51,606,815 | $ | 33,446,556 | |||||||||
| MCA income | 286,225 | - | 654,441 | - | |||||||||||||
| Interest and other income | 124,998 | 93,841 | 341,098 | 233,516 | |||||||||||||
| TOTAL REVENUE | 13,920,978 | 8,283,102 | 52,602,354 | 33,680,072 | |||||||||||||
| EXPENSES | |||||||||||||||||
| Interest expense | 11,983,968 | 8,650,149 | 32,009,934 | 23,149,030 | |||||||||||||
| Employee compensation and benefits | 2,912,463 | 2,308,246 | 8,450,168 | 6,180,886 | |||||||||||||
| Legal and professional fees | 586,830 | 822,077 | 3,097,312 | 1,988,261 | |||||||||||||
| Other expenses | 2,863,212 | 2,231,341 | 7,608,057 | 5,646,402 | |||||||||||||
| TOTAL EXPENSES | 18,346,473 | 14,011,813 | 51,165,471 | 36,964,579 | |||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (4,425,495 | ) | (5,728,711 | ) | 1,436,883 | (3,284,507 | ) | ||||||||||
| INCOME TAX EXPENSE (BENEFIT) | (1,428,130 | ) | (2,097,633 | ) | 1,478,617 | (664,905 | ) | ||||||||||
| NET INCOME (LOSS) | $ | (2,997,365 | ) | $ | (3,631,078 | ) | $ | (41,734 | ) | $ | (2,619,602 | ) | |||||
| Loss attributable to preferred shareholders | 421,026 | 343,644 | 1,103,896 | 1,041,648 | |||||||||||||
| INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (2,576,339 | ) | $ | (3,287,434 | ) | $ | 1,062,162 | $ | (1,577,954 | ) | ||||||
| NET INCOME (LOSS) PER SHARE | |||||||||||||||||
| Basic | $ | (0.50 | ) | $ | (0.61 | ) | $ | (0.01 | ) | $ | (0.44 | ) | |||||
| Diluted | $ | (0.50 | ) | $ | (0.61 | ) | $ | 0.13 | $ | (0.44 | ) | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | |||||||||||||||||
| Basic | 5,978,322 | 5,937,320 | 5,962,938 | 5,894,956 | |||||||||||||
| Diluted | 5,978,322 | 5,937,320 | 8,092,196 | 5,894,956 | |||||||||||||
Non-GAAP Financial Measures
GWG uses non-GAAP financial measures for evaluating financial results, planning and forecasting, and maintaining compliance with covenants contained in borrowing agreements. The application of current GAAP standards during a period of significant growth in the Company’s business, in which period the Company is building a large and actuarially diverse portfolio of life insurance, results in current period operating performance that may not be reflective of the Company’s long-term earnings potential. Management believes that the Company’s non-GAAP financial measures permit investors to better focus on this long-term earnings performance without regard to the volatility in GAAP financial results that can occur during this phase of growth.
Non-GAAP financial measures disclosed by GWG are provided as additional information to investors in order to provide an alternative method for assessing our financial condition and operating results. These non-GAAP financial measures are not in accordance with GAAP and may be different from non-GAAP measures used by other companies, including other companies within our industry. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for comparable amounts prepared in accordance with GAAP. A reconciliation of GAAP to the non-GAAP financial measures described above can be found below.
Adjusted Non-GAAP Net Income . Our credit facility requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our net income on a non-GAAP basis.
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | ||||||||||
| REVENUE | |||||||||||||
| GAAP net income | $ | (2,997,365 | ) | $ | (3,631,078 | ) | $ | (41,734 | ) | $ | (2,619,602 | ) | |
| Unrealized fair value (1) | (21,073,226 | ) | (14,516,881 | ) | (53,846,155 | ) | (26,651,363 | ) | |||||
| Adjusted cost basis increase (2) | 19,948,537 | 13,344,825 | 51,688,501 | 37,987,878 | |||||||||
| Accrual of unrealized actuarial gain (3) | 11,769,210 | 9,200,886 | 29,339,217 | 21,416,778 | |||||||||
| Total adjusted non-GAAP income (4) | 7,647,156 | 4,397,752 | 27,139,829 | 30,133,691 | |||||||||
| Adjustments to income | 421,026 | 343,644 | 1,103,896 | 1,041,648 | |||||||||
| Non-GAAP income attributable to common shareholders | 8,068,182 | 4,741,396 | 28,243,725 | 31,175,339 | |||||||||
| Non-GAAP net income per share: | |||||||||||||
| Basic | 1.28 | 0.74 | 4.55 | 5.11 | |||||||||
| Diluted | 0.98 | 0.59 | 3.49 | 3.91 | |||||||||
| Average shares outstanding: | |||||||||||||
| Basic | 5,978,322 | 5,937,320 | 5,962,938 | 5,894,956 | |||||||||
| Diluted | 8,201,644 | 8,004,124 | 8,092,196 | 7,964,687 | |||||||||
(1) Reversal of unrealized fair value gain of life insurance policies. (2) Adjusted cost basis is increased to include those acquisition, financing and servicing expenses which are not capitalized under GAAP. (3) Accrual of actuarial gain at expected internal rate of return based on the non-GAAP investment cost basis for the applicable period. (4) We must maintain an annual positive consolidated net income, calculated on a non-GAAP basis, to maintain compliance with our DZ Bank/Autobahn revolving credit facility.
Investor Contacts: Larry Clark (310) 622-8223 Financial Profiles, Inc. GWGH@finprofiles.com Media Contacts: Shileen Weber Head of Marketing and Communications GWG Holdings, Inc. (612) 839-5088 sweber@gwglife.com
