SEC Filing - GWG Holdings, Inc.

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gwgh-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from _________ to ________

Commission File Number: 001-36615

GWG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware						26-2222607
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

325 North St. Paul Street, Suite 2650

Dallas, TX 75201

(Address of principal executive offices, including zip code)

(612) 746-1944

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock

GWGH

NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 11, 2020, GWG Holdings, Inc. had 33,094,664 shares of common stock outstanding.

GWG HOLDINGS, INC.

Index to Form 10-Q

for the Quarter Ended June 30, 2020


			Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	2
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 4.	Controls and Procedures	73

PART II. OTHER INFORMATION			73
Item 5.	Other Information	73
Item 6.	Exhibits	74

SIGNATURES			74

Table Of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30, 2020 (Unaudited)		December 31, 2019
ASSETS
Cash and cash equivalents	$	149,233	$	79,073
Restricted cash	19,059		20,258
Investment in life insurance policies, at fair value	794,706		796,039
Life insurance policy benefits receivable, net	19,789		23,031
Loans receivable, net of unearned income	218,448		232,344
Allowance for loan losses	(7,900)		—
Loans receivable, net	210,548		232,344
Fees receivable	31,611		29,168
Financing receivables from affiliates	69,428		67,153
Other assets	40,142		30,135
Goodwill	2,384,121		2,358,005
TOTAL ASSETS	$	3,718,637	$	3,635,206
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation	$	203,578	$	174,390
L Bonds	1,072,973		926,638
Seller Trust L Bonds	366,892		366,892
Other borrowings	152,118		153,086
Interest and dividends payable	23,284		16,516
Deferred revenue	37,858		41,444
Accounts payable and accrued expenses	23,457		27,836
Deferred tax liability, net	33,674		57,923
TOTAL LIABILITIES	1,913,834		1,764,725

Redeemable noncontrolling interests	1,264,031		1,269,654

STOCKHOLDERS’ EQUITY

REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 62,986 and 84,636; liquidation preference of $63,354 and $85,130 as of June 30, 2020 and December 31, 2019, respectively)	52,373		74,023
SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 144,325 and 147,164; liquidation preference of $145,167 and $148,023 as of June 30, 2020 and December 31, 2019, respectively)	125,029		127,868
COMMON STOCK
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding, net of common stock in treasury, 30,537,481 and 30,533,793 as of June 30, 2020 and December 31, 2019, respectively)	33		33
Common stock in treasury, at cost (2,500,000 shares as of both June 30, 2020 and December 31, 2019)	(24,550)		(24,550)
Additional paid-in capital	225,537		233,106
Accumulated deficit	(136,355)		(76,501)
TOTAL GWG HOLDINGS STOCKHOLDERS’ EQUITY	242,067		333,979
Noncontrolling interests	298,705		266,848
TOTAL STOCKHOLDERS’ EQUITY	540,772		600,827
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,718,637	$	3,635,206

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 1

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
REVENUE
Gain on life insurance policies, net	$	14,788	$	19,930	$	29,233	$	41,426
Interest income	12,671		3,881		26,660		7,337
Trust services revenues	4,829		—		9,856		—
Other income	36,501		199		36,597		464
TOTAL REVENUE	68,789		24,010		102,346		49,227
EXPENSES
Interest expense	37,142		28,487		73,013		55,462
Employee compensation and benefits	11,840		6,794		89,544		11,948
Legal and professional fees	7,643		4,722		13,806		7,669
Provision for loan losses	7,200		—		7,900		—
Other expenses	4,895		5,938		8,507		8,766
TOTAL EXPENSES	68,720		45,941		192,770		83,845
INCOME (LOSS) BEFORE INCOME TAXES	69		(21,931)		(90,424)		(34,618)
INCOME TAX BENEFIT	(8,550)		—		(23,057)		—
NET INCOME (LOSS) BEFORE INCOME (LOSS) FROM EQUITY METHOD INVESTMENT	8,619		(21,931)		(67,367)		(34,618)
Income (loss) from equity method investment	(1,318)		600		(2,848)		(1,327)
NET INCOME (LOSS)	7,301		(21,331)		(70,215)		(35,945)
Net loss (income) attributable to noncontrolling interests	(21,723)		—		10,361		—
Less: Preferred stock dividends	3,714		4,278		7,666		8,574
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(18,136)	$	(25,609)	$	(67,520)	$	(44,519)
NET LOSS PER COMMON SHARE
Basic	$	(0.59)	$	(0.78)	$	(2.21)	$	(1.35)
Diluted	$	(0.59)	$	(0.78)	$	(2.21)	$	(1.35)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	30,536,830		33,011,603		30,535,811		32,998,246
Diluted	30,536,830		33,011,603		30,535,811		32,998,246

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 2

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(70,215)	$	(35,945)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Change in fair value of life insurance policies	(17,455)		(33,850)
Amortization of deferred financing and issuance costs	8,742		6,522
Amortization of upfront fees	(3,586)		—
Amortization of debt premiums	(887)		—
Amortization and depreciation on long-lived assets	492		—
Accretion of discount on financing receivable from affiliate	—		(864)
Non-cash interest income	(25,811)		—
Non-cash interest expense	1,238		—
Loss from equity method investment	2,848		1,327
Provision for loan losses	7,900		—
Deferred income tax	(24,250)		—
Equity-based compensation	73,060		665
Forfeiture of vested equity-based compensation	(36,267)		—
(Increase) decrease in operating assets:
Life insurance policy benefits receivable	3,242		10,884
Fees receivable	(2,443)		—
Accrued interest on financing receivable	—		(3,046)
Other assets	(2,869)		(4,948)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses	2,592		(4,753)
NET CASH FLOWS USED IN OPERATING ACTIVITIES	(83,669)		(64,008)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies	—		(31,538)
Carrying value of matured life insurance policies	18,789		14,045
Purchases of fixed assets	(1,743)		—
Financing receivables from affiliates issued	—		(50,000)
Equity method investments	(9,166)		(10,000)
Net change in loans receivable	11,169		—
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	19,049		(77,493)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt	28,530		—
Repayments of senior debt	—		(19,569)
Purchase of noncontrolling interest	(261)		—
Proceeds from issuance of L Bonds	202,572		171,227
Payments for issuance and redemption of L Bonds	(65,129)		(46,977)
Issuance (repurchase) of common stock	24		57
Payments for redemption of preferred stock	(24,489)		(3,214)
Preferred stock dividends	(7,666)		(8,574)
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES	133,581		92,950
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	68,961		(48,551)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD	99,331		125,436
END OF PERIOD	$	168,292	$	76,885

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 3

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2020		2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	59,615	$	49,434
Premiums paid, including prepaid	34,299		34,902
NON-CASH INVESTING AND FINANCING ACTIVITIES
L Bonds:
Conversion of accrued interest and commissions payable to principal	$	940	$	872
Investment in life insurance policies included in accounts payable	—		788
Business combination measurement period adjustments:
Reduction in loans receivable (see Note 4)	$	26,116	$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 4

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

For the three and six months ended June 30, 2020:


	Preferred Stock Shares	Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, March 31, 2020 (unaudited)	216,567	$	186,658	30,535,249	$	33	$	229,207	$	(121,933)	$	(24,550)	$	269,415	$	331,711	$	601,126	$	1,241,641
Net loss	—	—		—	—		—		(14,422)		—		(14,422)		(667)		(15,089)		22,390
Issuance of common stock	—	—		2,232	—		8		—		—		8		—		8		—
Redemption of redeemable preferred stock	(9,256)	(9,256)		—	—		—		—		—		(9,256)		—		(9,256)		—
Preferred stock dividends	—	—		—	—		(3,714)		—		—		(3,714)		—		(3,714)		—
Equity-based compensation	—	—		—	—		36		—		—		36		4,189		4,225		—
Forfeiture of vested equity-based compensation	—	—		—	—		—		—		—		—		(36,267)		(36,267)		—
Purchase of noncontrolling interest	—	—		—	—		—		—		—		—		(261)		(261)		—
Balance, June 30, 2020 (unaudited)	207,311	$	177,402	30,537,481	$	33	$	225,537	$	(136,355)	$	(24,550)	$	242,067	$	298,705	$	540,772	$	1,264,031


	Preferred Stock Shares	Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total GWG Holdings Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity		Redeemable noncontrolling interests
Balance, December 31, 2019 (audited)	231,800	$	201,891	30,533,793	$	33	$	233,106	$	(76,501)	$	(24,550)	$	333,979	$	266,848	$	600,827	$	1,269,654
Net loss	—	—		—	—		—		(59,854)		—		(59,854)		(4,738)		(64,592)		(5,623)
Issuance of common stock	—	—		3,688	—		26		—		—		26		—		26		—
Redemption of redeemable preferred stock	(24,489)	(24,489)		—	—		—		—		—		(24,489)		—		(24,489)		—
Preferred stock dividends	—	—		—	—		(7,666)		—		—		(7,666)		—		(7,666)		—
Equity-based compensation	—	—		—	—		71		—		—		71		73,123		73,194		—
Forfeiture of vested equity-based compensation	—	—		—	—		—		—		—		—		(36,267)		(36,267)		—
Purchase of noncontrolling interest	—	—		—	—		—		—		—		—		(261)		(261)		—
Balance, June 30, 2020 (unaudited)	207,311	$	177,402	30,537,481	$	33	$	225,537	$	(136,355)	$	(24,550)	$	242,067	$	298,705	$	540,772	$	1,264,031

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Page 5

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

For the three and six months ended June 30, 2019:


	Preferred Stock Shares	Preferred Stock		Common Shares	Common Stock (par)		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
Balance, March 31, 2019 (unaudited)	245,064	$	215,154	32,992,606	$	33	$	245,295	$	(199,224)	$	261,258
Net loss	—	—		—	—		—		(21,331)		(21,331)
Issuance of common stock	—	—		40,874	—		326		—		326
Repurchase of common stock	—	—		(60)	—		—		—		—
Redemption of redeemable preferred stock	(2,416)	(2,416)		—	—		—		—		(2,416)
Preferred stock dividends	—