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GWG Holdings Reports Third Quarter 2016 Financial Results

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 Information1
    • Adjusted Non-GAAP net income of $7.6 million, or $1.28 per basic share2
  • 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, 20163
  • 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

_______________________

(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


Life 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 smokers24
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%


Distribution 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
Direct1 policy benefits purchased $14,958,000 $8,920,000 $34,511,000 $16,668,000
Direct1 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

Source:GWG Holdings, Inc.