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

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.

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 2019Q4 2018FY 2019FY 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 

Ben's Collateral Portfolio

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