GWG Holdings, Inc. Reports Results For the First Quarter Ended March 31, 2020

Rhea-AI Summary

GWG Holdings (GWGH) announced its Q1 2020 financial results, reporting a net loss of $49.4 million compared to a loss of $18.9 million in Q1 2019. Revenue increased to $33.6 million, driven by the consolidation of The Beneficient Company Group, while total expenses surged to $124.1 million due to significant equity-based compensation. Despite challenges from COVID-19, GWGH raised $110.8 million through L Bonds and maintained a life insurance portfolio valued at $2.0 billion. The company continues to focus on its investment in Ben, having closed its Life Care Exchange program.

Positive

• Raised $110.8 million from L Bond sales in Q1 2020.
• Total assets increased to $3.7 billion as of March 31, 2020.
• Strong life insurance portfolio performance with $25.5 million in policy benefits realized.

Negative

• Net loss increased to $49.4 million in Q1 2020 from $18.9 million in Q1 2019.
• Recognized $68.9 million in non-cash equity-based compensation, significantly impacting net loss.
• Total expenses rose to $124.1 million, up from $37.9 million in the previous year.

DALLAS, May 15, 2020 (GLOBE NEWSWIRE) -- Today, 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 its financial and operating results for the first quarter ended March 31, 2020. The results reflect consolidated accounting and financial reporting of GWGH and The Beneficient Company Group, L.P. (Ben LP) and related entities (collectively, Ben).

Recent Corporate Developments

• Despite the uncertainty surrounding the novel coronavirus pandemic (COVID-19), the Company continues to raise capital, pay and receive interest income and dividends, receive insurance policy benefits, and otherwise meet its ongoing operating obligations.
• On March 30, 2020, the Company filed a registration statement to offer up to $2.0 billion in principal amount of L Bonds on a continuous basis until 2023. These bonds contain terms and features that are substantially consistent with previous L Bond offerings.
• On May 15, 2020, Ben and its lender signed a term sheet to amend its senior credit and subordinated credit agreements. Among other changes, the amendment would extend the maturity date of both loans to April 10, 2021, and provides for them to be transferred to GWGH or a subsidiary upon issuance of Ben’s trust company charters by the Texas Department of Banking. The amendments set forth in the term sheet are subject to, among other things, the negotiation and execution of definitive agreements governing the amendments and the satisfaction of closing conditions.
• On March 6, 2020, Ben submitted revised trust charter applications to the Texas Department of Banking which the Department is actively reviewing and considering. In the interim, Ben has closed a limited number of transactions to date, but intends to significantly expand its operations if and when the trust charters are issued.

First Quarter 2020 Financial and Operating Highlights

• Reported first quarter 2020 net loss of $49.4 million, compared to a net loss of $18.9 million in the first quarter of 2019
  • GWGH’s investment in Ben was accounted for as an equity method investment prior to the change-of-control on December 31, 2019, and the first quarter of 2020 includes the consolidated results of Ben for the first time.
  • Recognized $68.9 million of non-cash, equity-based compensation expense during the first quarter of 2020 as a result of grants under Ben’s equity incentive plans, which significantly contributed to the consolidated net loss. The recognition of these Ben expenses is a result of the transactions between Ben and GWGH that created the year-end 2019 gain. The majority of those awards vest over a four-year period beginning on the grantee’s service date to Ben (e.g., hire date for an employee). Because many participants in Ben’s equity incentive plans have been with the company for multiple years, some awards vested up to 100 percent on the grant date and that vesting required recognition of the commensurate equity-based compensation in the first quarter 2020 filing. The grant date value of the awards was based on the recent valuation of Ben completed in conjunction with the change-of-control event on December 31, 2019. Equity-based compensation expense on a quarterly basis going forward is expected to be significantly lower based on the awards outstanding as of March 31, 2020.
• Reported total assets of $3.7 billion as of March 31, 2020, compared to $3.6 billion as of December 31, 2019.
• Reported continued strong life insurance portfolio performance:
  • Realized $25.5 million of face amount of policy benefits from 20 life insurance policies during the first quarter of 2020, compared to $30.5 million from 20 life insurance policies during the first quarter of 2019.
  • Ended the quarter with a life insurance portfolio of $2.0 billion in face amount of policy benefits consisting of 1,131 policies.
• Reported continued success raising capital through the L Bond investment product with $110.8 million of L Bond sales in the first quarter of 2020.
• Continued its shift in focus away from new life insurance policy acquisitions and towards its investment in Ben, while managing its existing life insurance policy portfolio. As part of that strategic shift, the Company has ended its Life Care Exchange program for purchasing policies.

Reported total liquidity (cash, restricted cash, policy benefits receivable and fees receivable) increased to $188.7 million at March 31, 2020.

“In this unprecedented time, we are working hard to support our advisors and the clients they serve,” said Murray Holland, GWGH’s Chief Executive Officer. “We believe our products are uniquely positioned to provide a combination of yield and stability as advisors and broker-dealers report a need for liquidity at a previously unseen level among our target market of individual and small institutional investors.”

1. Financial & Operating Highlights

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($ Thousands except per share information)	Q1 2020			Q1 2019
77%; width:77%; min-width:77%;">Revenue	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">33,557	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">25,217	1%; width:1%; min-width:1%;">
Expenses		124,050				37,904
Income Tax Benefit		14,507				—
Loss from Equity Method Investments		(1,530	)			(1,927	)
Net Loss, including Loss from Equity Method Investment		(77,516	)			(14,614	)
Loss Attributable to Noncontrolling Interests		32,084				—
Preferred Stock Dividends		3,952				4,296
Net Loss Attributable to Common Shareholders		(49,384	)			(18,910
Per Share Data:
Net Loss1		(1.62	)			(0.57	)
Capital Raised from L Bonds		110,825				125,985
Liquidity2		188,661				183,896
Life Insurance Portfolio3		2,000,680				2,098,428
Life Insurance Acquired3		—				80,211
Face Value of Matured Policies		25,502				30,459
TTM Benefits / Premiums4		184.3	%			154.8	%

⁽¹⁾ Per diluted common share outstanding
⁽²⁾ Includes cash, restricted cash, policy benefits receivable and fees receivable as of the end of the period presented
⁽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

First Quarter 2020 vs. First Quarter 2019:

• Total revenue was $33.6 million in the current period, compared to $25.2 million in the prior period primarily due to:

• The Ben consolidation added $9.4 million of interest income from its financing receivables portfolio, after intercompany eliminations, and $5.0 million in trust services and other fee revenue.
• Interest income of $1.1 million on the LiquidTrusts promissory note.
• These increases were partially offset by $7.0 million of lower gains on life insurance policies primarily due to slightly lower average face value of matured policies and no gains on acquisitions.

• Total expenses were $124.1 million in the current period, compared to $37.9 million in the prior period primarily due to:

• Employee compensation and benefits increased by $72.6 million for this period primarily due to the inclusion of Ben’s operations, which included the recognition of $68.9 million of non-cash, equity-based compensation expense under Ben’s equity incentive plans.
• Interest and fees increased by $8.9 million due to $6.1 million of additional interest expense on L Bonds as a result of increased amounts outstanding, increased interest expense of $2.3 million from the consolidation of Ben related to its borrowings, and increased interest expense of $0.5 million on GWGH’s senior credit facility.
• Legal and professional fees increased by $3.2 million primarily due to additional legal and consulting fees recognized with the full consolidation of Ben’s operations beginning in the first quarter of 2020.
  

3. Life Insurance Portfolio Statistics as of and for the quarter ended March 31, 2020

Portfolio Summary:

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79%; width:79%; min-width:79%;">Total life insurance portfolio face value of policy benefits (in thousands)	2%; width:2%; min-width:2%;">$	18%; width:18%; min-width:18%;">2,000,680	1%; width:1%; min-width:1%;">
Average face value per policy (in thousands)	$	1,769
Average face value per insured life (in thousands)	$	1,900
Weighted average age of insured (years)		82.6
Weighted average life expectancy estimate (years)		7.2
Total number of policies		1,131
Number of unique lives		1,053
Demographics		74% Males; 26% Females
Number of smokers		47
Largest policy as % of total portfolio face value		0.7	%
Average policy as % of total portfolio		0.1	%
Average annual premium as % of face value		3.5	%

Distribution of Policies and Benefits by Current Age of Insured:

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										Percentage of Total
Min Age		Max Age		Number of Policies			Policy Benefits			Number of Policies			Policy Benefits			Wtd. Avg. LE (yrs.)
12%; width:12%; min-width:12%;">95	2%; width:2%; min-width:2%;">	11%; width:11%; min-width:11%;">101	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">	11%; width:11%; min-width:11%;">20	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	11%; width:11%; min-width:11%;">42,602	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">	11%; width:11%; min-width:11%;">1.7	1%; width:1%; min-width:1%;">%	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">	11%; width:11%; min-width:11%;">2.1	1%; width:1%; min-width:1%;">%	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">	11%; width:11%; min-width:11%;">2.1	1%; width:1%; min-width:1%;">
90		94			147				289,269				13.0	%			14.5	%			3.2
85		89			232				544,264				20.5	%			27.2	%			5.0
80		84			247				439,948				21.9	%			22.0	%			7.2
75		79			223				369,024				19.7	%			18.4	%			9.9
70		74			199				247,346				17.6	%			12.4	%			11.1
60		69			63				68,227				5.6	%			3.4	%			11.3
Total					1,131			$	2,000,680				100.0	%			100.0	%			7.2

4. Ben’s Collateral Portfolio Information
         
As of March 31, 2020, Beneficient’s loan portfolio had exposure to 118 professionally managed alternative investment funds, comprised of 350 underlying investments, and approximately 92 percent of Beneficient’s loan portfolio was collateralized by investments in private companies. Beneficient’s loan portfolio diversification spans across these industry sectors, geographic regions and exposure types:

A graphic accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/823dc06d-1eee-4f28-9b3e-6e8146447718

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.

5. Additional Information
       
Gain (Loss) on Life Insurance Policies (in thousands):

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	Three Months Ended March 31,
	2020			2019
77%; width:77%; min-width:77%;">Change in estimated probabilistic cash flows(1)	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">17,851	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">17,131	1%; width:1%; min-width:1%;">
Unrealized gain on acquisitions(2)		—				4,459
Premiums and other annual fees		(17,199	)			(15,832	)
Face value of matured policies		25,502				30,459
Fair value of matured policies		(11,709	)			(14,721	)
Gain (loss) on life insurance policies, net	$	14,445			$	21,496

⁽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.

Policy Benefits Realized and Premiums Paid (TTM):  

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18%; width:18%; min-width:18%;">Quarter End Date	3%; width:3%; min-width:3%;">	18%; width:18%; min-width:18%;">Portfolio Face Amount (in thousands)	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	18%; width:18%; min-width:18%;">12-Month Trailing Benefits Realized (in thousands)	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	18%; width:18%; min-width:18%;">12-Month Trailing Premiums Paid (in thousands)	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	18%; width:18%; min-width:18%;">12-Month Trailing Benefits/Premium Coverage Ratio	1%; width:1%; min-width:1%;">
22%; min-width:22%;">March 31, 2016	1%; min-width:1%;">	16%; min-width:16%;">1,027,821	1%; min-width:1%;">	1%; min-width:1%;">	11%; min-width:11%;">21,845	1%; min-width:1%;">	1%; min-width:1%;">	17%; min-width:17%;">28,771	1%; min-width:1%;">	1%; min-width:1%;">	23%; min-width:23%;">75.9	3%; min-width:3%;">%
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	%
March 31, 2020		2,000,680			120,191			65,224			184.3	%

Webcast Details

Management will host a webcast Monday, May 18, 2020 at 4:30 p.m. EDT to discuss financial and operating results. The webcast will give viewers audio and access to PowerPoint slides that illustrate points made during the presentation. To register for the webcast, go to http://get.gwgh.com/q12020webcastinvite.

After the webcast is completed, a replay of it can be accessed at http://get.gwgh.com/q12020webcast.

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, LLC, which owns a portfolio of $2.0 billion in face value of life insurance policy benefits as of March 31, 2020. 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. For more information about Beneficient, email askben@beneficient.com or visit www.trustben.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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on May 15, 2020, and our Annual Report on Form 10-K filed with the SEC 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 SEC. 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)

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	March 31, 2020 (unaudited)		December 31, 2019
ASSETS
77%; width:77%; min-width:77%;">Cash and cash equivalents	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">116,432	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">79,073	1%; width:1%; min-width:1%;">
Restricted cash		26,446				20,258
Investment in life insurance policies, at fair value		802,181				796,039
Life insurance policy benefits receivable, net		15,330				23,031
Loans receivable, net of unearned income		219,296				232,344
Allowance for loan losses		(700	)			—
Loans receivable, net		218,596				232,344
Fees receivable		30,453				29,168
Financing receivables from affiliates		68,290				67,153
Other assets		33,906				30,135
Goodwill		2,372,595				2,358,005
TOTAL ASSETS	$	3,684,229			$	3,635,206
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation	$	188,793			$	174,390
L Bonds		1,009,781				926,638
Seller Trust L Bonds		366,892				366,892
Other borrowings		152,597				153,086
Interest and dividends payable		22,403				16,516
Deferred revenue		39,651				41,444
Accounts payable and accrued expenses		21,139				27,836
Deferred tax liability, net		40,206				57,923
TOTAL LIABILITIES		1,841,462				1,764,725
Redeemable noncontrolling interests		1,241,641				1,269,654
STOCKHOLDERS’ EQUITY
REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 69,756 and 84,636; liquidation preference of $70,163 and $85,130 as of March 31, 2020 and December 31, 2019, respectively)		59,142				74,023
SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 146,812 and 147,164; liquidation preference of $147,668 and $148,023 as of March 31, 2020 and December 31, 2019, respectively)		127,516				127,868
COMMON STOCK
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding 30,535,249 and 30,533,793 as of March 31, 2020 and December 31, 2019, respectively)		33				33
Common stock in treasury, at cost (2,500,000 shares as of both March 31, 2020 and December 31, 2019)		(24,550	)			(24,550	)
Additional paid-in capital		229,207				233,106
Accumulated deficit		(121,933	)			(76,501	)
TOTAL GWG HOLDINGS STOCKHOLDERS’ EQUITY		269,415				333,979
Noncontrolling interests		331,711				266,848
TOTAL STOCKHOLDERS’ EQUITY		601,126				600,827
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,684,229			$	3,635,206

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)

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	Three Months Ended March 31,
	2020			2019
REVENUE
77%; width:77%; min-width:77%;">Gain on life insurance policies, net	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">14,445	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	9%; width:9%; min-width:9%;">21,496	1%; width:1%; min-width:1%;">
Interest and other income		19,112				3,721
TOTAL REVENUE		33,557				25,217
EXPENSES
Interest expense		35,871				26,975
Employee compensation and benefits		77,704				5,154
Legal and professional fees		6,163				2,947
Provision for loan losses		700				—
Other expenses		3,612				2,828
TOTAL EXPENSES		124,050				37,904
LOSS BEFORE INCOME TAXES		(90,493	)			(12,687	)
INCOME TAX BENEFIT		(14,507	)			—
NET LOSS BEFORE LOSS FROM EQUITY METHOD INVESTMENT		(75,986	)			(12,687	)
Loss from equity method investment		(1,530	)			(1,927	)
NET LOSS		(77,516	)			(14,614	)
Net loss attributable to noncontrolling interests		32,084				—
Less: Preferred stock dividends		3,952				4,296
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(49,384	)		$	(18,910	)
NET LOSS PER COMMON SHARE
Basic	$	(1.62	)		$	(0.57	)
Diluted	$	(1.62	)		$	(0.57	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		30,534,977				32,984,741
Diluted		30,534,977				32,984,741

FAQ

What was GWGH's net loss in Q1 2020?

GWGH reported a net loss of $49.4 million in Q1 2020.

How much did GWGH raise from L Bond sales in Q1 2020?

GWGH raised $110.8 million from L Bond sales in Q1 2020.

What is GWGH's life insurance portfolio valued at?

GWGH's life insurance portfolio was valued at $2.0 billion as of March 31, 2020.

How did COVID-19 affect GWGH's operations?

Despite COVID-19, GWGH continued to raise capital and meet operating obligations.

What changes did GWGH make to its operations in Q1 2020?

GWGH shifted focus from acquiring new life insurance policies to investing in The Beneficient Company.