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GWG HOLDINGS, INC. REPORTS RESULTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED DECEMBER 31, 2019
March 31, 2020 at 8:40 AM EDT

DALLAS, March 31, 2020 (GLOBE NEWSWIRE) -- GWG Holdings, Inc. (Nasdaq: GWGH), a financial services holding company committed to transforming the alternative asset industry through innovative liquidity products and related services for the owners of illiquid alternative investments, 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.

Ben's Collateral Portfolio
Ben’s loan portfolio diversification spans across these industry sectors, investment strategy types and geographic regions


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  

GWG logo.jpg

Source: GWG Holdings, Inc.