Q3 2024 Abacus Life Inc Earnings Call
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Speaker Change: Good day, ladies and gentlemen, and thank you for standing by.
At this time, all participants are in a listen-only mode.
Speaker Change: Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question over the phone by pressing the star and 1 on your telephone keypad. Please note, this event is being recorded.
Speaker Change: I'd now like to turn the call over to Robert Phillips, Abacus Life's Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.
Robert Phillips: Thank you, Operator, and thank you, everyone, for joining Advocates Life's third quarter 2024 earnings call. Here with me today are Jay Jackson, Chairman and Chief Executive Officer, and Bill McCauley, Chief Financial Officer.
Robert Phillips: This afternoon at 4.15 p.m. Eastern Time, Abacus Life released its third quarter 2024 results. This afternoon's call will allow participants to ask questions about our results.
Robert Phillips: Before we begin, Advocates Life refers participants on this call to the investor web page for the press release, the investor information, and filings with the SEC for a discussion of the risks that can affect the business.
Robert Phillips: Advocates Life specifically refers participants to the presentation furnished today on Form 8K with the Securities and Exchange Commission and to remind listeners that some of the comments today may contain forward looking statements and as such will be subject to risks and uncertainties which if they materialize could materially affect results.
Robert Phillips: For more information on the risks, uncertainties, and assumptions relating to forward-looking statements, please refer to Abacus Life's public filings.
During the call, we will reference certain non-GAAP financial measures.
Robert Phillips: Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under U.S. generally accepted accounting principles or GAAP.
Robert Phillips: Please see our public filings for additional information regarding our non-GAAP financial measures, including references to comparable GAAP measures.
Speaker Change: And with that, I'd now like to turn the call over to Jay Jackson, Chairman and Chief Executive Officer.
Jay Jackson: Thanks, Rob, and thank you to everyone joining us today for your interest in Abacus and welcome to our third quarter 2024 earnings call. After Bill and I conclude our prepared remarks, we'll open it up to your questions.
Jay Jackson: Before I discuss our results for the quarter, I want to recognize the immense challenges faced by our communities here in Florida due to the recent hurricanes. Our thoughts and prayers are with everyone affected.
Jay Jackson: We're thankful for all of the first responders who have been working tirelessly to assist and restore our communities. I also want to especially thank our team in Florida who work tirelessly for advocates and for our communities, even when they were personally impacted by the storms.
I'm incredibly proud of our entire team.
Turning to our results.
Jay Jackson: We delivered another strong quarter of profitable growth while making significant progress with respect to our strategic initiatives, further positioning Abacus Life as a leading market maker and alternative asset manager.
Jay Jackson: For the third quarter of 2024, we grew total revenue by 33% year-over-year to $28.1 million.
and recorded strong adjusted earnings.
Jay Jackson: growing adjusted EBITDA by 54% year-over-year to $16.7 million and generating a 65% year-over-year increase in adjusted net income to $14.9 million or $0.20 per diluted share.
Jay Jackson: Bill will be along shortly to discuss our third quarter financial performance in further detail.
Jay Jackson: In addition to our exceptional quarterly financial results, we made substantial advances in our ABL tech program, announced key acquisitions, and strengthened our executive bench and added a new partnership and product offering.
Jay Jackson: First, I'm thrilled by the significant progress we've made in advancing our ABL TAC initiative since we officially announced the program just eight months ago.
Jay Jackson: ABLTAC went live with external clients in April and signed our first public pension client in June. In August this year, we also signed one of the largest union pension funds in the United States.
Our track record in winning RFPs has been outstanding.
Jay Jackson: and we are consistently outperforming the key incumbent vendors in the space.
Jay Jackson: Out of the five RFPs we have bid thus far, we won four of them and are awaiting notification on the remaining one. Assuming we win the final RFP, we expect to exceed one million lives tracked by the first quarter of 2025.
Jay Jackson: ABL Tech's value proposition was fully validated in one of our RFPs, which received the highest overall score across all categories, including data security, product performance, and performance
Jay Jackson: price, and company evaluation, showing off ABL Tech's clear market-leading differentiation.
Jay Jackson: As of October 31st, ABL Tech serves 21 clients with 23 others either having provided firm commitments or in current negotiations. All of this across 23 states.
Jay Jackson: We expect many, if not all, of those in our pipeline to be officially onboarded by the end of the first quarter of 2025, with contracts ranging from three to five years, containing automatic renewals at the end of the initial term.
Jay Jackson: Looking ahead, we also have more than 50 potential clients in our pipeline in various stages of discovery, pricing, and proposals heading into 2025.
Jay Jackson: by leveraging decades of experience in proprietary health and longevity data sets.
Jay Jackson: ABL Tech creates bespoke solutions that deliver tremendous value to the pension fund and financial services industries. We expect ABL Tech to become a significant driver of our top-line growth over the long term.
Jay Jackson: In addition, during the third quarter, we announced two key acquisitions.
Carlisle Management Company SCA and FCF Advisors.
Jay Jackson: Carlisle Management, a premier Luxembourg-based investment manager in the life settlement space, and FCF Advisors, an asset manager and index provider specializing in free cash flow-focused investment strategies, together will add approximately $2.6 billion in assets under management to our portfolio.
Jay Jackson: We expect both deals to close by the end of the fourth quarter, subject to regulatory approval.
Jay Jackson: We also significantly strengthened our senior management team with two key additions. First, we are thrilled to bring on board Corey McLaren as Managing Director of Capital Markets.
Jay Jackson: Corey brings a wealth of financial services experience, including over 15 years specifically in life settlements and managing life settlement investment funds at Spearhead Capital and launching similar funds at FTO partners.
Jay Jackson: Corey's deep industry knowledge and proven track record in business development and fund management will expand our capabilities in advancing our strategic goals.
Jay Jackson: In early October, we welcomed Rob Phillips as our new Senior Vice President of Investor Relations and Corporate Affairs.
Jay Jackson: Rob brings over 30 years of invaluable experience in capital markets and investor relations, including leadership roles at NASDAQ, where he served as a primary liaison to public company executives and board members.
Jay Jackson: as well as significant experience in institutional trading, brokerage, and regulatory affairs at the NYSE.
Speaker Change: Rob's expertise will be instrumental in strengthening our engagement with the investment in capital markets communities, advancing our strategic business initiatives, and supporting our growth objectives.
Speaker Change: We also made excellent progress with new product initiatives. In the quarter, Abacus partnered with Loresco to launch PredaSAN, a revolutionary health prediction and actuary technology tool.
Speaker Change: The innovative risk score combines blood-based proteomic biomarker analysis with AI-driven models to assess mortality risk, offering personalization and longevity forecasting.
Speaker Change: By integrating Lorisco's cutting-edge health prediction platform with Abacus's expertise in life settlements and actuarial technology, we will be able to provide highly tailored financial solutions for our clients.
Speaker Change: While this program is still in beta testing, this partnership makes a significant advancement in the field of longevity-based financial planning, enabling us to offer more accurate and personalized services that consider both traditional actuarial factors and modern proteomic markers.
Speaker Change: On the capital front, our balance sheet liquidity position remains strong. We successfully deployed the $92 million in equity capital we raised at the end of the second quarter, while maintaining a strong return on equity of 23% and return on invested capital of 21%.
Speaker Change: We are reviewing our capital options and, as rates continue to become more attractive, we are considering additional debt financing and, potentially, other avenues for additional financing to take advantage of our strong market.
Speaker Change: to purchase policy at very attractive returns and support our growth outlook.
Speaker Change: Looking ahead, we are committed to sustaining our momentum and seizing the vast opportunities before us to drive long-term profitable growth.
Speaker Change: Through constant, thoughtful investments in product innovation and prudent execution, we continue to firmly solidify Abacus as a pioneering global alternative asset manager and market maker.
Speaker Change: With that, I'll now hand it over to our CFO, Bill McCauley, to discuss the specifics of our third quarter results in financials.
Bill McCauley: Thanks Jay and hello everyone. As Jay mentioned, we delivered another solid quarter of top-line growth and profitability at Abacus.
Bill McCauley: The key driver of our business performance continues to be our highly efficient origination platform while we continue to build our other verticals that will continue to our future earnings.
Bill McCauley: In the third quarter 2024, capital deployed was $93.2 million compared to $56.4 million in the prior year period, while we grew policies purchased by 53% to $278 compared to $181 in the prior year period.
Bill McCauley: With our continued policy origination and capital deployment, as of September 30, 2024, Abacus holds 532 policies with a value of $274.4 million on the balance sheet.
Bill McCauley: Total revenue in the third quarter, 2024, grew by 33% to $28.1 million compared to $21.1 million in the prior year period. The increase was primarily due to higher active management revenue.
Bill McCauley: Turning to expenses, total operating expenses excluding unrealized and realized gains and losses and the change in fair value of debt for the third quarter 2024 were approximately $19.4 million.
compared to $13.2 million in the prior year period.
Bill McCauley: The increase from the prior year period was due to higher investments in SG&A.
Bill McCauley: Notably, we increased our total employee headcount by 10% in the third quarter to support our growth initiatives through policy acquisition and active management and through increased marketing to support our growth profile.
Bill McCauley: The company typically realizes the benefit of marketing spend within 90 to 120 days.
Bill McCauley: Adjusted EBITDA for the quarter grew 54% to $16.7 million compared to $10.8 million in the prior year period.
Bill McCauley: Adjusted EBITDA margin grew to 59.2% for the quarter compared to 51.1% in the prior year period.
Bill McCauley: Gap net loss attributable to stockholders for the quarter was $5.1 million compared to net income of $0.9 million in the prior year period.
Bill McCauley: which is primarily driven by a non-cash $8.7 million increase in warrant liability in the third quarter of 2024, compared to a non-cash $0.9 million increase in the prior year period.
Bill McCauley: on an adjusted basis, excluding non-cash stock compensation, business acquisition costs,
Bill McCauley: Amortization and change in fair value of warrant liability, net income for the third quarter of 2024 grew by 65% to $14.9 million, compared to $9 million in the prior year period.
Turning to our balance sheet metrics.
Bill McCauley: On an annualized basis, for the three-month period ended September 30, 2024, adjusted return on equity was 23% and adjusted return on invested capital was 21%, both reflecting our highly profitable business model.
Bill McCauley: As of September 30, 2024, the company had cash and cash equivalents of $19.4 million, balance sheet policy assets of $274.4 million, and outstanding long-term debt of $166.5 million.
Bill McCauley: In summary, we are pleased with our robust performance this quarter and we continue to deliver double-digit growth on our top line as well as solid profitability on an adjusted basis.
Bill McCauley: We remain very excited about the growth opportunities ahead and are well positioned to execute on our long-term plans.
Speaker Change: I will now turn it back to our CEO, Jay Jackson, for our closing comments.
Jay Jackson: Thanks, Bill. In conclusion, as we close out 2024, we remain very excited about the vast market opportunity in front of us, and we are well positioned to capture and grow our market share in the space.
Jay Jackson: Our journey towards becoming a global alternative asset manager is well on track and our extensive longevity data is creating new opportunities across various sectors, enhancing our growth prospects.
Jay Jackson: We're committed to building on our two-decade track record of financial success to deliver long-term profitable growth.
Jay Jackson: Again, thank you all for joining us today, and we appreciate your interest in Abacus Life. With that, we look forward to your questions.
Speaker Change: At this time, if you'd like to ask a question, please press the star and 1 on your telephone keypad. Keep in mind you may remove yourself from the question queue at any time by pressing star and 2.
Speaker Change: Again, it's star and one to ask a question today. We'll take our first question from Crispin Love with Piper Sandler. Please go ahead, your line is open.
Speaker Change: Thank you, and good evening everyone. Just first off, Jay, can you just talk a little bit about trends in the fourth quarter so far, and then seasonality more broadly? I believe in the past you've talked about originating face value and capital deployed.
Speaker Change: being higher in the fourth quarter as people plan for the year ahead and meet with advisors, etc. So first, is this true, and is this something that you've been seeing so far this year? Thank you.
Thank you.
Speaker Change: Hi, Christopher. Thank you. And yes, we've seen that trend continue for us.
Speaker Change: Advocate has been in our industry for now over 20 years and historically the fourth quarter from an origination point of view is.
Speaker Change: As I think, at the policy level, the policyholders themselves are looking to potentially
Speaker Change: conclude this transaction prior to the year end and so historically we've had
Speaker Change: stronger numbers in relationship to origination in Q4. With that said...
Speaker Change: We also had a very strong Q3, and I think that could also be another indication of just things to come. But when you look at our origination of year over year, as much as we were
Speaker Change: You know, I think that we're very, very bullish and certainly remain optimistic that we'll continue to see that origination trend continue in that direction. So it's, you know, Q4, it looks like it's shaping up to the same way that we've historically seen it.
Speaker Change: Great. Thanks, Shay. That's helpful. And then, Bill, can you just share what the originated face value in the third quarter was? I saw the capital deployed, but just looking for that originated face value number.
In the third quarter, it was 471.6 million.
Thank you.
You're welcome.
Speaker Change: And as a reminder if you'd like to ask a question today please press the star and one keys. We'll take our next question from Andrew Klagerman from TD Cohen. Please go ahead your line is open.
Speaker Change: The decrease in rates or lowering of rates announced today.
Speaker Change: And when you have lower cost of capital that increases additional investment into an asset like ours, which traditionally has above market uncorrelated types of returns.
Speaker Change: And so for us when we think about active management.
Speaker Change: That means is that we should continue to see that trend coming into 2025.
Speaker Change: So we're excited for our prospects right now we think we're incredibly well positioned and it's a really smart and intelligent time to be putting.
Speaker Change: More capital to work.
Speaker Change: And so we had a successful Q3 and deploying that capital and we're certainly looking at all options as we as we just stated as to what Q4 and Q1 look like in relationship to capital and active management, but.
Speaker Change: Things look very positive right now.
Speaker Change: And then and then maybe talk about the much much smaller revenue line items portfolio servicing and origination revenue those numbers were off a bit versus the year ago quarter could you could you give a little color around each and how you're feeling and both of them.
Speaker Change: Those areas.
Speaker Change: Sure.
Speaker Change: The servicing revenue for us.
Speaker Change: Ebb and flow depending on how active we are with our own portfolio.
Speaker Change: And even Alex so as you have cash kind of enter in and out of anyone's portfolio, where they're selling policies that means that you are servicing revenue may be impacted up or down beyond that.
Speaker Change: One of our clients on the servicing side has been effectively winding down some of their portfolio and that we've been selling those into the market very successfully and that's had some impact of the servicing but from our perspective, one of the things that we're very excited about on the servicing revenue line item as we continue.
Speaker Change: Our process with Carlyle asset management, we think that we will see some significant servicing revenue continue to grow there.
Speaker Change: We continue to integrate that process.
Speaker Change: Got it and that closes at the end of the year.
Speaker Change: Yes.
Speaker Change: Say for sure one data or another but.
Speaker Change: We're anticipating two we're still anticipating to see that as a Q4 close.
Speaker Change: Got it.
Speaker Change: And then the origination revenue.
Speaker Change: Yes. So the origination revenue is is typically if we don't have initial capital or we don't want to hold that policy on our balance sheet, we might take that policy and then sell it directly to that investor and Theres a number of reasons why that might be it might be size constraints. It doesn't mean that theres anything.
Speaker Change: From a basis of the policy that we do or don't like it just might be a more efficient transaction today charge, an origination fee and they sell that directly to that third party investor and so.
Speaker Change: It makes sense that that origination fee would have come down as we are buying and holding more policies on our balance sheet and then of course selling them from our balance sheet versus trading them or rather than originating then Bam AD for a origination fee directly to the third party investors. So this is the trend you would expect as we deploy more capital off of.
Speaker Change: Our on balance sheet.
Speaker Change: Makes sense. Thank you.
Speaker Change: Sure.
And we'll take our next question from Mike Grondahl with Northland Securities. Please go ahead. Your line is open.
Speaker Change: Hey, Thank you guys.
Speaker Change: Any update on the competitive environment and Jay maybe one of your top two priorities for 25.
Speaker Change: Thank you.
Speaker Change: Sure I.
Speaker Change: We will start with it.
Speaker Change: Some of our primary focus for 2025 and <unk>.
Speaker Change: Number one is to continue to expand our education and awareness program through our marketing.
Speaker Change: Our underlying asset and people, having a greater understanding of what our industry represents.
Speaker Change: But in addition to that what you saw was.
Speaker Change: From the acquisition point of view groups that might be a little bit different than just outside of our industry things that what we would call adjacent industries that we're taking a good close look at so.
Speaker Change: We want to continue to expand.
Speaker Change: Our current business and revenue model, while horizonte it horizontally looking at those other sources of revenue, which would include things like whether that's through servicing valuation.
Speaker Change: We're obviously excited about some of the things that we're starting to see in the ABL tack division in providing mortality verification services to pension.
Speaker Change: A little bit of among others.
Speaker Change: Learned so far with a bank partner.
Speaker Change: And how are the new on demand product is going.
What was that Mike I apologize I think I missed part of that question.
Speaker Change: The second part was just on the competitive environment.
Speaker Change: Got it.
In related to a competitive environment I think.
Speaker Change: In our industry and others as you have success. It hopefully rises the tides of all in the industry and we're continuing to measure that I think that.
Speaker Change: The competitive landscape for our industry is that it's still a pretty tight industry and that gives us a lot of run room from where we stand.
Speaker Change: We are the only publicly traded company in our industry still today and I think that gives us a significant advantage not only in relationship to capital, but also in how we're conveying our message directly to policyholders and other institutions, we're having a lot of success in sharing our story.
Speaker Change: With other large origination and distribution sources that we've talked about so you know.
Speaker Change: From where we sit we feel really good about.
Speaker Change: How well, we're positioned for 2025 and going forward and.
We think it will still continue to have a competitive advantage because of that.
Speaker Change: Great Hey, thank you.
Speaker Change: Absolutely.
Speaker Change: Yeah.
Speaker Change: And there are no further questions on the line at this time I'll return the program to <unk> <unk> for any closing remarks.
Speaker Change: Terrific. Thank you everyone for taking time out of your evening to dial in and listen to our call.
Hopefully a couple of your key takeaways is that.
Speaker Change: One of the things that we're certainly very proud of is that we are continuing our growth we are incredibly well positioned for coming in and not just in the short term, but also for the long term and we expect those tense because those trends to continue.
Speaker Change: As we deployed our capital when we started to look at things like our.
Speaker Change: EBITDA margin at almost 60% now.
Speaker Change: Quarter like Q3, something that we're very proud of and look forward to this continued growth. So as everyone comes into the holidays. We wish you the very best holidays, and we look forward to speaking to you again in the new year.
Speaker Change: This does conclude the abacus life's earnings call.
Thank you for your participation and you may now disconnect.
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