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GWG Holdings Reports Fourth Quarter and Full Year 2016 Financial Results

MINNEAPOLIS, March 08, 2017 (GLOBE NEWSWIRE) -- GWG Holdings, Inc. (Nasdaq:GWGH), the parent company of GWG Life, a financial services company committed to transforming the life insurance industry through disruptive and innovative products and services, today announced its financial results for the fourth quarter and full year ended December 31, 2016.

Highlights for the Three Months Ended December 31, 2016

  • GAAP Financial Information
    -- Total revenue of $16.9 million, up over 184% from the prior year
    -- Net loss of $3.1 million, or ($0.52) per basic and fully diluted share
  • Adjusted Non-GAAP Financial Information1
    -- Net income of $11.5 million, or $1.92 per basic share2
  • Raised $44.2 million of capital from investment product offerings
  • Purchased $103.7 million in face value of policy benefits, the fourth consecutive quarter of growth in excess of $100 million
  • Direct policy origination channel – purchases through independent financial advisors and life insurance agents – accounted for 43% of total purchases as compared to 11% in Q4 2015
  • Recognized $14.1 million in policy benefits from seven life insurance policies during the fourth quarter, and an additional $16.0 million in policy benefits from eight policies from January 1
    through March 8, 2017
  • Began exploring the commercial application of the “DNA Methylation-Based Predictor of Mortality” technology optioned from the University of California, Los Angeles (UCLA) in November 2016:
    -- Began collecting and analyzing the epigenetic biomarkers from consumers as part of its life insurance secondary market underwriting
    -- Hired Dr. Brian Chen, a recognized expert on aging and epigenetic technology, to lead the initiative to measure and predict human lifespan from epigenetic biomarkers
  • Reported portfolio of $1.36 billion in face value of life insurance policy benefits, covering 622 unique lives; a net year-over-year growth of $416.8 million or 44% versus the same period one year ago
  • Reported total liquidity position of $121.7 million at December 31, 20163

Highlights for the Twelve Months Ended December 31, 2016

  • GAAP Financial Information
    -- Total revenue of $69.5 million, up over 75% from the prior year
    -- Net loss of $3.1 million, or ($0.53) per basic and fully diluted share
  • Adjusted Non-GAAP Financial Information1
    -- Net income of $38.6 million, or $6.48 per basic share2
  • Raised $210.9 million of capital - including $57.0 million in preferred equity - from investment product offerings, an increase of $79.8 million or 60.8% over 2015
  • Purchased $465.8 million in face value of policy benefits as compared to $197.0 million in 2015, an increase of $268.9 million, or 136% over 2015
  • Direct policy origination channel - purchases of life insurance policies through independent financial advisors and life insurance agents by face value – accounted for 31% of total purchases, as compared to 21% in 2015
  • Recognized $48.5 million in policy benefits from 23 life insurance policies, an increase of $17.2 million or 55% over 2015
  • Increased the total number of financial advisors able to sell investment products to 4,679
  • Increased the total number of financial advisors and life insurance agents able to source life insurance policies through GWG Life’s Appointed Agent Program to 3,440 – representing an increase of 1,775 advisors or 141% during the year

“This was a break-out year for the Company’s continued growth and development. We have made important progress in key areas that have created an engine of future growth for the Company,” said Chief Executive Officer Jon Sabes.

Sabes cited the direct impact of the Company’s record capital raise that has enabled it to grow its portfolio of life insurance policies.  The portfolio of policies itself generated a record $48.5 million of cash flow in 2016, reflecting the size, diversity and age of the policies. “Raising capital and growing our portfolio are the most important measures of success for us,” Sabes said. “Over the long run, greater portfolio scale and diversity will enable us to generate significant cash flows and earnings.”

As a result, GWG Life paid senior consumers $82.4 million, more than 10 times the cash surrender value of $7.9 million offered them by the issuing life insurance carriers in 2016. “This is making a positive, meaningful difference in the lives of the clients we work with,” Sabes said.

Sabes also cited the impact on the Company of the epigenetic methylation technology for prediction of human lifespan optioned from UCLA and now being applied to GWG Life’s underwriting process. “We launched what we believe is the most exciting aspect of our business since its founding 11 years ago with the acquisition of this technology that we are now applying to our current business, and will seek to apply to the life insurance industry at large,” Sabes said. “We are committed to continue reinventing the life insurance industry, starting with the value proposition of the secondary market and finishing with an insurtech revolution to life insurance products themselves.”

“In 2016, we made significant progress towards our objective of growing our balance sheet and improving our capital structure,” said William Acheson, Chief Financial Officer.  “The addition of a new long-term committed credit facility, along with changes to our L Bond offering, and the success of our Redeemable Preferred Stock offering not only improved the duration matching of our financing and life insurance portfolio, but also added permanent equity to the balance sheet,” Acheson continued.  “These changes, combined with the record amount of cash flow recognized from our portfolio of life insurance during the year, fuel our optimism for 2017 and beyond.”

Fourth Quarter 2016 Financial Summary

Total revenue for the fourth quarter ended December 31, 2016 was $16.9 million, as compared to $6.0 million for the same period in 2015. Realized gain from policy benefits for the fourth quarter was $10.5 million, as compared to $0.8 million for the same period in 2015. The Company recognized $14.1 million of life insurance policy benefits in the fourth quarter, as compared to $1.5 million in the same period of 2015. Total unrealized gain from policy acquisitions during the fourth quarter was $8.7 million, as compared to $5.8 million for the same period in 2015.

Total expenses for the fourth quarter of 2016 were $21.1 million, as compared to $13.6 million for the same period in 2015. The increase was due to additional interest expense as a result of higher debt balances outstanding, costs and fees associated with our new senior credit facility, increased compensation and benefits costs due to growth in the number of employees and other expenses due to insurance costs and marketing and business development expenses.

Full Year 2016 Financial Summary

Total revenue for the full year ended December 31, 2016 was $69.5 million, as compared to $39.6 million in 2015. Realized gain from policy benefits for the full year was $37.5 million, as compared to $26.7 million in 2015. The Company recognized $48.5 million of life insurance policy benefits in 2016, as compared to $31.2 million in 2015. Total unrealized gain from policy acquisitions in 2016 was $38.2 million, as compared to $24.6 million in 2015.

Total expenses for 2016 were $72.3 million, as compared to $50.5 million in 2015. The increase was due to additional interest expense as a result of higher debt balances outstanding, increased compensation and benefits costs due to growth in the number of employees (from 50 to 70) and other expenses due to insurance, investor relations, marketing and business development expenses.  The proportion of our expenses amongst our major categories – compensation and benefits, interest, legal and professional and other – were very similar for both the quarter and year ended December 31, 2016.

__________________________
(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, restricted cash, policy benefits receivable, if any, and amounts available, if any, on our senior credit facilities.


Other Financial Information
 
Gain on Life Insurance Policies
 
      Three Months Ended     Twelve Months Ended  
      December 31,
2016
    December 31,
2015
    December 31,
2016
    December 31,
2015
 
Change in est. probabilistic cash flows   $   16,668,000   $ 8,396,000   $ 57,509,000   $ 28,562,000  
Premiums and other fees paid       (11,015,000 )   (7,597,000 )   (40,240,000 )   (26,711,000 )
Fair value of matured policies       (7,908,000 )   (1,044,000 )   (22,290,000 )   (15,953,000 )
Change in life expectancy evaluation       (3,420,000 )   (105,000 )   (6,029,000 )   (3,192,000 )
Change in discount rates       2,700,000     (323,000 )   3,188,000     5,404,000  
Unrealized gain on acquisitions       8,696,000     5,795,000     38,205,000     24,550,000  
Realized gain on maturities       10,474,000     812,000     37,459,000     26,721,000  
Gain on life insurance policies   $   16,195,000   $ 5,934,000   $ 67,802,000   $ 39,381,000  
                           


Life Insurance Portfolio Summary
 
Total portfolio face value of policy benefits   $ 1,361,675,000  
Average face value per policy   $ 1,973,000  
Average face value per insured life   $ 2,189,000  
Average age of insured (yrs.)     81.6  
Average life expectancy estimate (yrs.)     6.9  
Total number of policies     690  
Number of unique lives     622  
Demographics     73% Males; 27% Females  
Number of smokers     29  
Largest policy as % of total portfolio     0.97 %
Average policy as % of total portfolio     0.14 %
Average annual premium as % of face value     2.96 %


Distribution of Policies and Policy Benefits by Current Age of Insured
 
Min Age   Max Age   Policy Benefits     Weighted Average
Life Expectancy (yrs.)
  Percentage of
Total
Policy Benefits
 
90   96   $ 123,491,000        2.6       9.1 %
85   89   $ 355,249,000        4.8       26.1 %
80   84   $ 381,592,000        6.5       28.0 %
75   79   $ 253,761,000        9.2       18.6 %
70   74   $ 150,403,000        10.1       11.1 %
65   69   $ 97,179,000       11.2       7.1 %
Total       $ 1,361,675,000       6.9       100.0 %


Life Insurance Portfolio Activity
 
      Three Months Ended     Twelve Months Ended  
      December 31,
2016
    December 31,
2015
    December 31,
2016
    December 31,
2015
 
                           
Total policy benefits purchased   $ 103,682,443   $ 67,462,589   $ 465,832,724   $ 196,977,448  
Total life insurance policies purchased     72     54     317     114  
Average policy benefit purchased   $ 1,440,000     1,249,000   $ 1,470,000     1,728,000  
Direct policy benefits purchased   $ 25,020,400     4,250,000   $ 59,523,414     20,918,028  
Direct insurance policies purchased     31     6     97     25  



Trailing 12 Month Policy Benefits Recognized and Premiums Paid
 
Quarter End Date   Portfolio
Face Amount ($)
    12-Month
Trailing
Benefits Collected ($)
    12-Month
Trailing Premiums
Paid ($)
    12-Month
Trailing
Benefits/Premium
Coverage Ratio
December 31, 2013     740,648,000       16,600,000       21,733,000       76.4 %
March 31, 2014     771,940,000       12,600,000       21,930,000       57.5 %
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       193.5 %
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 %
December 31, 2016     1,361,675,000       48,452,000       40,240,000       120.4 %

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 70362917. The call may also be accessed via webcast on the Company’s website at investors.gwglife.com.

A replay of the call will be available through March 15, 2017 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (international), using the passcode 70362917.

About GWG Holdings, Inc.

GWG Holdings, Inc. (Nasdaq:GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and innovative products and services. Already a recognized disruptor in the life insurance secondary market, GWG Life seeks to further transform the industry by continuing to create innovative products and services. As of December 31, 2016, GWG Life’s growing portfolio consisted of over $1.362 billion in face value of policy benefits. Since 2006, GWG Life has purchased over $2.3 billion in life insurance policy benefits and paid seniors more than $398 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
 
    December 31,
2016
    December 31,
2015
 
A S S E T S
Cash and cash equivalents   $ 78,486,982     $ 34,425,105  
Restricted cash     37,826,596       2,341,900  
Investment in life insurance policies, at fair value     511,192,354       356,649,715  
Secured MCA advances     5,703,147       -  
Life insurance policy benefits receivable     5,345,000       -  
Other assets     4,688,103       2,461,045  
TOTAL ASSETS   $ 643,242,182     $ 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   $ 156,064,818     $ 63,279,596  
Series I Secured Notes     16,404,836       23,287,704  
L Bonds     381,312,587       276,482,796  
Accounts payable     2,226,712       1,517,440  
Interest payable     16,160,599       12,340,061  
Other accrued expenses     1,676,761       1,060,786  
Deferred taxes, net     2,097,371       1,763,968  
TOTAL LIABILITIES   $ 575,943,684     $ 379,732,351  
                 
STOCKHOLDERS’ EQUITY                
                 
CONVERTIBLE PREFERRED STOCK                
(par value $0.001; shares authorized 40,000,000; shares outstanding
2,640,521 and 2,781,735; liquidation preference of $19,804,000 and
$20,863,000 on December 31, 2016 and 2015, respectively)
    19,701,133       20,784,841  
                 
REDEEMABLE PREFERRED STOCK                
(par value $0.001; shares authorized 100,000; shares outstanding 59,183
  on December 31, 2016)
    59,025,164       -  
                 
COMMON STOCK                
(par value $0.001: shares authorized 210,000,000; shares issued and
outstanding 5,980,190 and 5,941,790 on December 31, 2016 and 2015,
respectively)
    5,980       5,942  
Additional paid-in capital     13,506,360       17,149,391  
Accumulated deficit     (24,940,139 )     (21,794,760 )
TOTAL STOCKHOLDERS’ EQUITY     67,298,498       16,145,414  
                 
TOTAL LIABILITIES & EQUITY   $ 643,242,182     $ 395,877,765  



GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
    Three Months Ended
    Twelve Months Ended
      December 31,
2016
      December 31,
2015
      December 31,
2016
     December 31,
2015

 
REVENUE                                  
Gain on life settlements, net   $ 16,194,750     $ 5,934,446     $ 67,801,565     $ 39,381,003    
MCA income     274,863       -       929,303       -    
Interest and other income     405,369       17,734       746,466       251,249    
TOTAL REVENUE     16,874,982       5,952,180       69,477,334       39,632,252    
                                   
EXPENSES                                  
Interest expense     13,870,727       8,438,930       45,880,661       31,587,960    
Employee compensation and benefits     3,334,128       1,829,134       11,784,296       8,010,020    
Legal and professional fees     623,052       1,164,521       3,947,376       3,152,783    
Other expenses     3,295,934       2,137,949       10,676,976       7,784,350    
TOTAL EXPENSES     21,123,841       13,570,534       72,289,309       50,535,113    
                                   
INCOME (LOSS) BEFORE INCOME TAXES     (4,248,859 )     (7,618,354 )     (2,811,975 )     (10,902,861 )  
INCOME TAX EXPENSE (BENEFIT)     (1,145,215 )     (2,844,682 )     333,403       (3,509,587 )  
                                   
NET INCOME (LOSS)   $ (3,103,644 )   $ (4,773,672 )   $ (3,145,378 )   $ (7,393,274 )  
                                   
Loss attributable to preferred shareholders     (462,633 )     (334,462 )     (1,566,530 )     (1,386,110 )  
INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (2,641,011 )   $ (4,429,210 )   $ (1,578,848 )   $ (6,007,164 )  
NET INCOME (LOSS) PER SHARE                                  
Basic   $ (0.52 )   $ (0.80 )   $ (0.53 )   $ (1.25 )  
Diluted   $ (0.52 )   $ (0.80 )   $ (0.53 )   $ (1.25 )  
                                   
WEIGHTED AVERAGE SHARES OUTSTANDING                                  
Basic     5,979,761       5,941,790       5,967,274       5,906,761    
Diluted     5,979,761       5,971,790       5,967,274       5,906,761    

Non-GAAP Financial Measures

GWGH 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 GWGH 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 DZ Bank/Autobahn senior revolving 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
December 31,
    Twelve Months Ended
December 31,
 
    2016     2015     2016     2015  
GAAP net loss   $ (3,103,644 )   $ (4,773,672 )   $ (3,145,378 )   $ (7,393,274 )  
Unrealized fair value gain (1)     (16,736,228 )     (12,719,696 )     (70,582,383 )     (39,371,059 )  
Adjusted cost basis increase (2)     21,130,138       14,081,661       72,818,639       52,069,538    
Accrual of unrealized actuarial gain (3)     10,211,954       10,148,988       39,551,171       31,565,766    
Total adjusted non-GAAP income (4)   $ 11,502,219     $ 6,737,279     $ 38,642,049     $ 36,870,970    
Adjustments to income     462,633       344,462       1,566,530       1,386,110    
Non-GAAP income attributable to common shareholders     11,964,852       7,081,741       40,208,579       38,257,080    
Non-GAAP net income per share:                                  
Basic     1.92       1.13       6.48       6.24    
Diluted     1.42       0.88       4.92       4.79    
Average shares outstanding:                                  
Basic     5,979,761       5,941,790       5,967,274       5,906,761    
Diluted     8,420,645       8,024,806       8,173,952       7,979,841    


(1) Reversal of GAAP 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 (non-GAAP Investment Cost Basis)
(3) Accrual of actuarial gain at the 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 adjusted non-GAAP income to maintain compliance with our DZ Bank/Autobahn revolving credit facility.

 

Media Contacts:
Dan Callahan
Director of Communication
GWG Holdings, Inc.
(612) 746-1935
dcallahan@gwglife.com

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