Q2 2020 GWG Holdings Inc Earnings Call

Officer.

Following our remarks today, we'll be happy to take submitted questions through the registration process. We've gotten a few questions. We think we'll give you more information, but if we don't get to one of yours or few questions. As a result of anything we present today, there will be a context slide at the end of the presentation you can email us call us and we will get you an answer.

Some statements on the webcast today, along with any projected financial results include forward looking statements that are subject to certain risks and uncertainties any forward looking statements made on this webcast are made based on assumptions as up today and we make no obligation to update them as a result of new information or future events.

Our sample list of factors and risks that could cause actual results to be materially different from forward looking statements can be found in our earnings release. It in our most recent 10-K and 10-Q reports webcast is being recorded and will be available on our website at Gtwoe bgh dot com through the Investor Relations tab, so with that I'll turn it.

Over to our President and Chief Executive Officer, Murray Highlands Marie.

Dan. Thank you very much and welcome everybody to our second quarter release conference today I have a number of items that were going to cover in this broadcast and to the first item is a number of corporate events that transpired during the second quarter of 2020, and our subsequent events happen at the end of the quarter.

We have are going to talk about the launch of been liquidity products for individual investors covered 19 update we're going to give you some financial metrics and results of operations from the second quarter and then we'll take questions and answers after that so we can have a number of corporate events to go over with.

On the first is we recorded some strong performance in our life portfolio of 39.9 million maturities a substantial increase over the same quarter of 2019.

We've had continued success in raising capital through our L bond investment product with approximately 93 and a half million during the second quarter of 2020.

We made two significant sales hires for the western probably the United States and for the Florida, Puerto Rico regions of the United States in our security sales organization.

We closed out our $1 billion L bond offering and begins raising capital under our 2 billion dollar L. Bond offering that was made effected by the FCC. During the second quarter. We were again included in the Russell 2000 index on a small cap stocks, which we consider a gray.

Bellwether for the company and a bellwether for our future with beneficial.

And then we've completed a number of key financial transactions that are necessary for the growth of the company. We entered into an agreement with ban to enable GW Jay to make more capital contribution has been.

The GW GE Special Committee of the board of Directors approved the release of liquid Trust borrowers debt in exchange for equity and Ben.

We file preliminary documents with the FCC, reflecting common shareholder authorities to amend the certificate of incorporation and we requested the approval of the consent solicitation for preferred shareholders for approval of that same amendment.

And lastly, we entered into a credit agreement that enable GW GE to assume part of bins of debt, which was a prerequisite for trust charters under the Texas banking regulatory department. So our path forward as we've explained over the last two years has been investments and Ben that is our core investment strategy.

Heavy in the second quarter late June been publically launched its liquidity platform for high net worth individuals in small to midsize institutions. These products provide investors access to simple.

Correct and cost effective liquidity solutions for their alternative investments, we expect to exceed the first assets being close by been near the later part of the third quarter.

As part of the launch Ben CEO and Chairman brand Hapner was live the on CNBC and Bloomberg Radio and he was quoted in storage in Wall Street Journal think advisor the deal straight insider and the Dallas business Journal.

We've had a number of significant changes in operations as a result recovered. So I think it's worth reviewing these with everybody.

Our licensure portfolio and then investments are remained strong during this period as most of you know the life insurance portfolios non correlated so the turmoil in the market has no effect on the value of our portfolios or the realization under our portfolios. The current market conditions have created a significant amount of distress to many.

Hi, net worth individuals around the country and in many cases have lowered their alternative asset values like.

Like most companies, we have focused on the health and safety of our employees and while we continue to raise capital and receive interest income and dividends and receive insurance policy benefits and meet our other obligations most of the employees our operating from their homes.

We've had relatively strong everyone sales in the face of the pain. They make in security sales have rebounded significantly since the March April timeframe.

We anticipate no material impact on our life insurance policies and portfolio from the cobot 19 pain billing.

As of June Thirtyth, we had consolidated total assets a little over $3.7 billion.

Total liabilities of just over $1.9 billion.

Total equity in non controlling interest of 1.8 billion.

And stockholders equity of $541 million.

And now I'd like to hate it over to Tim Evans, our Chief Financial Officer.

Tim.

Thank you Mike.

For two walking through our Q2 2020 financial results view.

Going to take on a few topics. This afternoon first will be the Q2 2020 financial metrics review.

Next we'll go to a review of the balance sheet liquidity and we'll take a look at both the been collateral portfolio and our life insurance portfolio. So let's start with the metrics really.

So we see here than in Q2 2020, we had gross revenue of 68.8 million compared to just 24 million in Q2 2019.

Look of what made up that difference we look down the bottom left for this slide we can see that that revenue increase breaks down to a few different areas.

Because when they're on the bottom is other income.

36.3 million was from other income recognized by Ben is the second quarter 2020, as result of the deemed forfeiture of some vested equity based compensation related to a former Ben director when that was forfeited back we recognized under GAAP income for that through Bennett.

36.3 million.

In addition to that one large items. We also had a few other nice increases here you can see that we had higher interest and other income or $8.8 million. That's attributable primarily to kind of $11.3 million of increased interest income through our investment.

Then and Trust service revenues of 4.8 million from our investment then so in total they contributed more than $15 million of additional income to our revenue.

We did have $5 million of lower net gain on life insurance policies, but that's simply a function of the fact that we're no longer purchasing life insurance policies and silver going to continue to see that natural difference quarter to quarter.

On the expense and side, we did have $68.7 million of expenses this quarter compared to 45.9 million a year ago.

On the bottom right, we can see what the breakdown of that increase in expenses relates to and you can see that the number one contributor is the higher interest in Q2 2020 that are interest obviously relates to the fact that we have sold more l. bonds as Mary mentioned, we continue to have relatively strong L bond sales, particularly in scope.

Time, and so those increased L. Bond sales just naturally these higher interest. There was also you can see at the bottom is 7.2 provision for loan loss that was made it then and thats going to be reflected.

And the expenses for the period. We also have higher employee compensation has about $5 million as we are taking on and consolidating Ben were also reflecting the employee compensation expenses as Vince entire staff as well. So we would expect to see those higher employee compensation and we also have higher legal expenses.

A $2.9 million as compared to last year lot of that obviously, we had as Mary mentioned a lot going on in July of this year that was not affect our Q2 numbers as Mary mentioned, we did have a lot of items going on in Q2 and that culminated in a items in July of this year. So those increased expenses over the quarter a makes sense.

For the increase of our legal expenses over that same time, we did have lower other expenses of $1 million.

And our loss from equity method investment, we had a $1.3 million loss. This quarter that's related to our former subsidiary life Epigenetics, which is now under the name of Fox. So the $1.3 million loss this quarter compared $2.6 million gain from the prior year I will note, though that that's not the.

Same equity method investment in Q2, 2018 that would have been then as compared to the loss here whats coming from FOXA.

Oh.

Also want to take a look at the income tax benefit. This one line above $8.6 million for the quarter as compared to nothing in Q2 2019 net income tax benefit is just deriving from the national maturities and our portfolio and the equity investment that we have in Ben.

So in total for the quarter, we have a net income of $7.3 million compared to year ago, a net loss. So great to see that net income the net income or loss attributable to common shareholders was 18.1 million dollar loss as compared to last year, which was a $25 million.

So we see improvement there and so our earnings per share also improved to 59 cents loss per share as opposed to the 78 cents loss per share. So improvement of 19 cents per share on our earnings for Q2 2012.

So now that we've looked at our metrics, let's take a look at our balance sheet and liquidity.

We can see here on the left that as Mary mentioned $3.7 billion until assets you can see here in the bottom left that our assets continue to grow slightly each quarter equities dropped off just a bit here and were total equity of $1.8 billion. You include all the non controlling interest well on the liquidity side.

Now, we see very positive trend there increase liquidity and that would include our cash restricted cash benefits and fees receivable. So nice to again see the impact of our continuing L. Bond sales assisting our liquidity there through June Thirtyth 2020, now we're redirecting as we can see at the bottom bullet.

On the right here, we're redirecting the that capital that's being raised away from the life policy purchases, which has been jvs historical business to the higher yielding alternative asset business that we can do through bad so let's take a look at that then portfolio here on the next slide so we see here.

Sure. Thanks collateral assets. So just as a reminder, this is something new we added last quarter. So want to take a minute to focus on this again since it's still relatively new.

Businesses to hold loans that were used to purchase alternative assets sign exalt plant. The exalt plan uses the cash offices assets to repay the loans and as we can see here on the approximately $210 million of loans receivable that then has after its loan loss allowance, it's going to earn or.

Accidently, a 15% effective interest rate on those loans and at least a 2.8% feed through its annual administration fee on those loans as well, so where we hold our life portfolio at about 8.25% deal, we're expecting that Ben it's going to be yielding over 17.

<unk> percent on its loans receivable and so we're very excited to see those expected yields offices loans receivable and as Mary mentioned, Ben has now out in the market with its product looking to add its originations. So we'll see additional loans receivable here in the future, which can continue to earn those yields when we talk about the.

Collateral portfolio itself. It's over 120 funds that are owned by the Exalt plan and that our act as collateral behind bends loans that have over 368 different investments and we see on the right here the different diversifications for those investments. This is going to be similar to what we've seen in the prior call.

Orders in our prior disclosures on that collateral asset portfolio.

So we're very excited about the yields on this portfolio about the new originations that we're looking to see now that Ben has launched its product hoping to see those originations come on over the future quarters swell. So we're excited about the future.

That said, what we've done historically is also performing well as we'll see in the next slide here on our life insurance portfolio.

That portfolio, because we're not adding new policies. At this time is continuing to season. So we have approximately $2 billion total portfolio face amounts the 1.96 million and have that $332 million those policy benefits our uninsureds over the age at night.

And this portfolio is paying consistent benefits as well so for Q2 of 2020, we had $39.9 million of total maturities. If we look just back last quarter that was 25.5 million very strong quarter here in Q2.

The other thing we'd like to always look at is how our benefits covering our premiums. So we can see that consistently this portfolios benefits is far exceeding its premiums on a trailing 12 month basis, let's see here at the bottom of the slide and you can see to continue to improve each quarter and really here in Q2 2020.

It's over 200% coverage on the benefits versus the premiums what that tells US is that this portfolio continues to support itself as far as the premiums. So we're very happy with the performance.

So again, we've talked about the $1.96 billion face amount in the portfolio and just over 1100 policies. We can see the breakdown of the assay benefits by the age to ensure here as we mentioned earlier over 300 million just in the 90 in over that we see in the 85 and over its 40.

5% of the benefits are over $880 million of benefits and the 85, an older. So continue choose to see seasoning on the portfolio and we continue to have very favorable and credit worthy counterparties as you can see here the breakdown of Counterparties that we have for them.

40 of our holdings in the quality of that credit.

So Dan Bessey into my section and now I think we're going to take some questions. Thanks, Tim we allow people to submit questions. During registration we received a number of good questions. Our first question is from an advisor who asks about the potential of a biden presidency affecting I'm, assuming the entire market as well as Sidoti GE holdings.

I might note that our CEO very Holland is author of the book a nation in the read about the government debt crisis, which gives him a interesting an important perspective on the macroeconomic trends a Murray how would you look at a potential biden presidents.

I don't view that the.

I will say is an issue with respect to the market significantly, particularly with respect to private equity, which is where we are I'm more concerned about the macroeconomic trends and those trends. The government debt trend is the one thing that bothers me. The most is our trajectory for government that but they are.

Other significant factors affecting it our interest rates in GDP growth et cetera that but are all outside the president say, so I don't view that either candidate would make a significant difference to the economics of the private equity industry.

Thanks, Mary our next question is from another advisor, we ask certainly status on the trusts charters you mentioned it briefly do we have any more information we can give people.

Sure during the second quarter of 2020.

Both Ben and the rating, Texas regulators work significantly long hours on the trust charters, we remain optimistic.

About them, but again there there is still in the hands of the trust of the regulators.

Here in the state of Texas.

Thanks Mary.

We have another question from an advisor who asks about the pandemic and how it's affected sales renewals and our projections going forward.

We addressed this briefly in a in my comments earlier and should like everybody. During the March April timeframe, we saw a decline in sales, but we've had a significant rebound since that and we're we're very positive about the future of lunch.

And our final question came in above the liquidity product that Ben as launch in the ability to access high net worth individuals. The question is if it's more challenging to try and reach high net worth individuals with this type of liquidity product and how Ben is going about reaching them.

Well that's a good question in the answer is we do not anticipate is going to be difficult to reach high net worth individuals.

For their liquidity products, Ben has developed a three multi channel strategies to initiate originations and to source deal flow from this diverse mix of clients.

Each of bins channels, they have three channels of originations our pioneering in their design.

And the delivery of liquidity solutions. The first channel is what Ben calls the advisory channel.

This has been national dedicated coverage model that supports high net worth individuals and small to midsized institutional investors.

And the entities that work what these investors such as family offices are a phase in professional service providers.

The next channel of originations or is the preferred provider channel.

This is where Ben.

Operates as a strategic and preferred enterprise liquidity provider.

For wealth management firms. These include national or regional broker dealers private banks general partner sponsor firms.

And other AI platform and service providers.

Then the final channel.

Is the director Investor Channel that was built to deliver liquidity solutions directly to investors through the Benz online portal, which is a secure portal.

Since the formal launch of the first offering a band just a few weeks ago. Then has seen significant interest in the liquidity bond product and the pipeline is growing as anticipated.

Very exciting stuff.

With that that is the end of our couponing and again, if you didn't get your question answered we're happy to get it to you offline just some color emails I want to thank everybody for taking time to hear about our second quarter and the exciting prospects. We have going forward. We hope you have a great rest of the day. Thank you all very much.