UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 3, 2019
GWG Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36615 | 26-2222607 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 220 South Sixth Street, Suite 1200, Minneapolis, MN | 55402 | |||
| (Address of principal executive offices) | (Zip Code) | |||
(612) 746-1944
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
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 |
Item 2.02 |
Results of Operations and Financial Condition | ||||
On September 3, 2019, GWG Holdings, Inc. issued a press release reporting the financial results for its second fiscal quarter ended June 30, 2019. The full text of the press release is furnished as Exhibit 99.1 to this Form 8-K.
The information in this Current Report on Form 8-K, including the information contained in the press release furnished as Exhibit 99.1, is deemed to be “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is not otherwise subject to the liabilities of that Section, and shall not be deemed incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit No. | Description | |
| 99.1 | Press release dated September 3, 2019 (filed herewith) |
| 2 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GWG Holdings, Inc. | ||
| Date: September 3, 2019 | By: | /s/ Timothy L. Evans |
| Timothy L. Evans Chief Financial Officer | ||
| 3 |
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press release dated September 3, 2019 (filed herewith) |
| 4 |
Exhibit 99.1
GWG HOLDINGS, Inc. ReportS Results for THE Second Quarter ENDED
JUNE 30, 2019
MINNEAPOLIS, MN – Sept. 3, 2019 – 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, today announced its financial and operating results for the second quarter ended June 30, 2019.
Second Quarter 2019 Financial and Operating Highlights
| ● | Realized $23.0 million of face amount of policy benefits from 19 life insurance policies. |
| ● | Reported additional policy realizations of $18.0 million from 16 policies through August 29, 2019, bringing the 2019 total to $71.4 million from 55 policies. This exceeds the face amount of policy benefits realized of $71.1 million for the entire year of 2018. |
| ● | Acquired $13.0 million of face amount of policy benefits. |
| ● | Ended the quarter with a life insurance portfolio of $2.1 billion in face amount of policy benefits consisting of 1,190 policies. |
| ● | Hired Jenniffer Daigle, an executive with extensive experience in alternative investment distribution, as Senior Vice President of Business Development. |
| ● | Reported total assets of $1.5 billion. |
| 1. | Financial & Operating Highlights |
| ($ Thousands except per share information) | Q2 2019 | Q2 2018 | YTD Q2 2019 | YTD Q2 2018 | ||||||||||||
| Revenue | $ | 24,010 | $ | 24,315 | $ | 49,227 | $ | 38,857 | ||||||||
| Expenses | 45,941 | 24,372 | 83,845 | 48,092 | ||||||||||||
| Per Share Data1: | ||||||||||||||||
| Net Income (Loss)2 | (0.78 | ) | (0.76 | ) | (1.35 | ) | (2.97 | ) | ||||||||
| Capital Raised (L Bonds) | 45,241 | 74,909 | 171,227 | 153,436 | ||||||||||||
| Liquidity3,4 | 82,461 | 158,131 | 82,461 | 158,131 | ||||||||||||
| Life Insurance Portfolio5 | 2,088,445 | 1,849,079 | 2,088,445 | 1,849,079 | ||||||||||||
| Life Insurance Acquired5 | 12,955 | 118,308 | 93,166 | 212,660 | ||||||||||||
| Face Value of Matured Policies | 22,998 | 27,623 | 53,457 | 42,127 | ||||||||||||
| TTM Benefits / Premiums6 | 138.6 | % | 142.8 | % | 138.6 | % | 142.8 | % | ||||||||
| (1) | Attributable to common shareholders |
| (2) | Per basic and fully diluted share outstanding |
| (3) | Includes cash, restricted cash and policy benefits receivable |
| (4) | Cash, restricted cash and policy benefits receivable totaled $62.3 million on August 29, 2019 |
| (5) | Face amount of policy benefits |
| (6) | The ratio of policy benefits recognized to premiums paid on a trailing twelve month (TTM) basis |
| 2. | Revenue and Expense Discussion |
Second Quarter 2019 vs. Second Quarter 2018:
| ● | Total revenue was $24.0 million in the current period, compared to $24.3 million in the prior period primarily due to: |
| o | Net revenue recognized at matured policy event was $4.0 million higher, unrealized gain on acquisition was $3.9 million lower and change in estimated probabilistic cash flows net of premium and fees was $3.6 million lower. Interest income on our commercial loan to The Beneficient Company Group, L.P. (BEN) was $2.4 million higher. Other interest income increased $0.7 million. |
1
| ● | Total expenses were $45.9 million in the current period, compared to $24.4 million in the prior period primarily due to: |
| o | Interest and fees increased by $11.3 million. This was driven by increased interest on L Bonds of $5.3 million as a result of additional amounts outstanding; Seller Trust L Bonds, which were issued in August 2018, increased interest expense by $6.8 million; and senior credit facility interest decreased by $0.8 million. |
| o | Operating expenses increased by $10.2 million. Compensation and professional expenses increased by $3.5 million and $3.6 million, respectively, primarily resulting from performance share unit expense, legal, audit and other professional fees resulting from the Purchase and Contribution transaction. Other expenses increased by $3.1 million due to business insurance purchased in connection with the Purchase and Contribution (previously disclosed) transaction. |
Second Quarter Year to Date 2019 vs. Second Quarter Year to Date 2018:
| ● | Total revenue was $49.2 million in the current period, compared to $38.9 million in the prior period primarily due to: |
| o | Net revenue recognized at matured policy event was $14.8 million higher, unrealized gain on acquisition was $6.5 million lower than the previous year; and a change in estimated probabilistic cash flows net of premiums and fees and change in life expectancy had a net impact of ($4.1 million). In addition, increases resulted from interest income from the BEN commercial loan of $4.8 million and an increase in other income of $1.3 million. |
| ● | Total expenses were $83.8 million in the current period, compared to $48.1 million in the prior period primarily due to: |
| o | Interest and fees increased by $22.3 million year over year. Outstanding L Bonds increased over this time period resulting in $11.4 million of additional interest expense, Seller Trust L Bonds, which were issued in August 2018, increased interest expense by $13.8 million, and interest expense on the senior credit facility decreased by $2.9 million. |
| o | Operating expenses increased by $13.5 million. Compensation and professional expenses increased by $5.0 million and $5.3 million, respectively, primarily resulting from performance share unit expense, retention incentives, and legal and professional fees resulting from the Purchase and Contribution transaction. Other expenses also increased by $3.2 million primarily driven by an increase in business insurance purchased in connection with the Purchase and Contribution (previously disclosed) transaction. |
| 3. | Life Insurance Portfolio Statistics |
Portfolio Summary:
| Total life insurance portfolio face value of policy benefits | $ | 2,088,445,000 | ||
| Average face value per policy | $ | 1,755,000 | ||
| Average face value per insured life | $ | 1,885,000 | ||
| Average age of insured (years) * | 82.0 | |||
| Average life expectancy estimate (years) * | 7.4 | |||
| Total number of policies | 1,190 | |||
| Number of unique lives | 1,108 | |||
| Demographics | 77% Male 23% Female | |||
| Number of smokers | 50 | |||
| Largest policy as % of total portfolio face value | 0.63 | % | ||
| Average policy as % of total portfolio face value | 0.08 | % | ||
| Average annual premium as % of face value | 3.1 | % |
| * | Averages presented in the table are weighted averages. |
2
Distribution of Policies and Benefits by Current Age of Insured:
| Percentage of Total | ||||||||||||||||||||||
| Min Age | Max Age | Number of Policies | Policy Benefits | Number of Policies | Policy Benefits | Wtd. Avg. LE (Years) | ||||||||||||||||
| 95 | 101 | 20 | $ | 34,983,000 | 1.7 | % | 1.7 | % | 2.2 | |||||||||||||
| 90 | 94 | 137 | 264,706,000 | 11.5 | % | 12.7 | % | 3.4 | ||||||||||||||
| 85 | 89 | 254 | 591,398,000 | 21.3 | % | 28.3 | % | 5.2 | ||||||||||||||
| 80 | 84 | 251 | 454,671,000 | 21.1 | % | 21.8 | % | 7.8 | ||||||||||||||
| 75 | 79 | 227 | 371,066,000 | 19.1 | % | 17.8 | % | 10.0 | ||||||||||||||
| 70 | 74 | 224 | 297,229,000 | 18.8 | % | 14.2 | % | 11.3 | ||||||||||||||
| 60 | 69 | 77 | 74,392,000 | 6.5 | % | 3.5 | % | 11.6 | ||||||||||||||
| Total | 1,190 | $ | 2,088,445,000 | 100.0 | % | 100.0 | % | 7.4 | ||||||||||||||
| 4. | Life Insurance Policy Origination |
Life Insurance Portfolio Activity:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
| Total policy benefits purchased | $ | 12,955,000 | $ | 118,308,000 | $ | 93,166,000 | $ | 212,660,000 | ||||||||
| Total life insurance policies purchased | 15 | 85 | 75 | 144 | ||||||||||||
| Average policy benefit purchased | $ | 846,000 | $ | 1,392,000 | $ | 1,242,000 | $ | 1,477,000 | ||||||||
| Direct policy benefits purchased | $ | 5,755,000 | $ | 8,038,000 | $ | 18,092,000 | $ | 13,038,000 | ||||||||
| Direct insurance policies purchased | 8 | 11 | 24 | 22 | ||||||||||||
| 5. | Additional Information |
Gain (Loss) on Life Insurance Policies:
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Change in estimated probabilistic cash flows(1) | $ | 17,122,000 | $ | 17,409,000 | $ | 34,253,000 | $ | 36,414,000 | ||||||||
| Unrealized gain on acquisitions(2) | 1,844,000 | 5,795,000 | 6,303,000 | 12,769,000 | ||||||||||||
| Premiums and other annual fees | (16,004,000 | ) | (12,708,000 | ) | (31,836,000 | ) | (24,906,000 | ) | ||||||||
| Change in discount rates(3) | - | - | - | - | ||||||||||||
| Change in life expectancy evaluation(4) | - | (95,000 | ) | - | (4,963,000 | ) | ||||||||||
| Face value of matured policies | 22,998,000 | 27,623,000 | 53,457,000 | 42,127,000 | ||||||||||||
| Fair value of matured policies | (6,030,000 | ) | (14,684,000 | ) | (20,751,000 | ) | (24,233,000 | ) | ||||||||
| Gain (loss) on life insurance policies, net | $ | 19,930,000 | $ | 23,340,000 | $ | 41,426,000 | $ | 37,208,000 | ||||||||
| (1) | Change in fair value of expected future cash flows relating to our 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 June 30 and March 31, 2019 and December 31, 2018, and was 10.45% at June 30 and March 31, 2018 and December 31, 2017. |
| (4) | The change in fair value due to updating life expectancy estimates on certain life insurance policies in our portfolio. |
3
Policy Benefits Recognized and Premiums Paid (TTM):
| Quarter End Date | Portfolio Face Amount ($) | 12-Month Trailing Benefits Realized ($) | 12-Month Trailing Premiums Paid ($) | 12-Month Trailing Benefits/Premium Coverage | ||||||||||||
| June 30, 2015 | 806,274,000 | 47,125,000 | 24,348,000 | 193.5 | % | |||||||||||
| September 30, 2015 | 878,882,000 | 44,482,000 | 25,313,000 | 175.7 | % | |||||||||||
| December 31, 2015 | 944,844,000 | 31,232,000 | 26,650,000 | 117.2 | % | |||||||||||
| March 31, 2016 | 1,027,821,000 | 21,845,000 | 28,771,000 | 75.9 | % | |||||||||||
| June 30, 2016 | 1,154,798,000 | 30,924,000 | 31,891,000 | 97.0 | % | |||||||||||
| September 30, 2016 | 1,272,078,000 | 35,867,000 | 37,055,000 | 96.8 | % | |||||||||||
| December 31, 2016 | 1,361,675,000 | 48,452,000 | 40,239,000 | 120.4 | % | |||||||||||
| March 31, 2017 | 1,447,558,000 | 48,189,000 | 42,753,000 | 112.7 | % | |||||||||||
| June 30, 2017 | 1,525,363,000 | 49,295,000 | 45,414,000 | 108.5 | % | |||||||||||
| September 30, 2017 | 1,622,627,000 | 53,742,000 | 46,559,000 | 115.4 | % | |||||||||||
| December 31, 2017 | 1,676,148,000 | 64,719,000 | 52,263,000 | 123.8 | % | |||||||||||
| March 31, 2018 | 1,758,066,000 | 60,248,000 | 53,169,000 | 113.3 | % | |||||||||||
| June 30, 2018 | 1,849,079,000 | 76,936,000 | 53,886,000 | 142.8 | % | |||||||||||
| September 30, 2018 | 1,961,598,000 | 75,161,000 | 55,365,000 | 135.8 | % | |||||||||||
| December 31, 2018 | 2,047,992,000 | 71,090,000 | 52,675,000 | 135.0 | % | |||||||||||
| March 31, 2019 | 2,098,428,000 | 87,045,000 | 56,227,000 | 154.8 | % | |||||||||||
| June 30, 2019 | 2,088,445,000 | 82,421,000 | 59,454,000 | 138.6 | % | |||||||||||
About GWG Holdings, Inc.
GWG Holdings, Inc. (Nasdaq: GWGH), the parent company of GWG Life, Life Epigenetics and YouSurance, is a leading provider of liquidity to consumers owning life insurance policies, an owner of a portfolio of alternative assets, and the developer of epigenetic technology for the life insurance and related industries. GWG Life provides value to consumers owning illiquid life insurance products across America, delivering $568 million more for their policies since 2006 than the cash surrender value on those policies. GWG Life owns a life insurance policy portfolio of $2.1 billion in face value of policy benefits as of June 30, 2019. Life Epigenetics is working to commercialize epigenetic technology for the life insurance and related industries. YouSurance, a digital life insurance agency, is working to embed epigenetic testing into life insurance purchasing to provide consumers a value-added ecosystem that supports their health and wellness while reducing the cost of their insurance. GWGH also has a strategic investment in The Beneficient Company Group, L.P., a financial services company providing proprietary liquidity solutions to owners of alternative assets.
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. 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) 746-1935
dcallahan@gwgh.com
4
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30 2019 (unaudited) | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 71,548,248 | $ | 114,587,084 | ||||
| Restricted cash | 5,336,425 | 10,849,126 | ||||||
| Investment in life insurance policies, at fair value | 799,266,174 | 747,922,465 | ||||||
| Life insurance policy benefits receivable, net | 5,576,397 | 16,460,687 | ||||||
| Financing receivable from affiliate | 238,678,993 | 184,768,874 | ||||||
| Equity method investment | 369,696,377 | 360,841,651 | ||||||
| Other assets | 51,121,238 | 45,437,164 | ||||||
| TOTAL ASSETS | $ | 1,541,223,852 | $ | 1,480,867,051 | ||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Senior credit facility with LNV Corporation | $ | 129,936,091 | $ | 148,977,596 | ||||
| L Bonds | 782,447,640 | 651,402,663 | ||||||
| Seller Trust L Bonds | 366,891,940 | 366,891,940 | ||||||
| Accounts payable | 3,910,742 | 9,276,507 | ||||||
| Interest and dividends payable | 17,632,911 | 18,555,293 | ||||||
| Other accrued expenses | 6,870,823 | 4,705,170 | ||||||
| TOTAL LIABILITIES | 1,307,690,147 | 1,199,809,169 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| REDEEMABLE PREFERRED STOCK | ||||||||
| (par value $0.001; shares authorized 100,000; shares outstanding 94,803 and 97,524; liquidation preference of $95,355,000 and $98,093,000 as of June 30, 2019 and December 31, 2018, respectively) | 84,188,835 | 86,910,335 | ||||||
| SERIES 2 REDEEMABLE PREFERRED STOCK | ||||||||
| (par value $0.001; shares authorized 150,000; shares outstanding 147,845 and 148,359; liquidation preference of $148,708,000 and $149,225,000 as of June 30, 2019 and December 31, 2018, respectively) | 128,548,958 | 129,062,704 | ||||||
| COMMON STOCK | ||||||||
| (par value $0.001; shares authorized 210,000,000; shares issued and outstanding 33,033,416 as of June 30, 2019 and 33,018,161 as of December 31, 2018) | 33,033 | 33,018 | ||||||
| Additional paid-in capital | 241,317,803 | 249,662,168 | ||||||
| Accumulated deficit | (220,554,924 | ) | (184,610,343 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 233,533,705 | 281,057,882 | ||||||
| TOTAL LIABILITIES & EQUITY | $ | 1,541,223,852 | $ | 1,480,867,051 | ||||
5
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
| REVENUE | ||||||||||||||||
| Gain (loss) on life insurance policies, net | $ | 19,929,818 | $ | 23,339,750 | $ | 41,426,208 | $ | 37,208,495 | ||||||||
| Interest and other income | 4,080,557 | 975,198 | 7,801,107 | 1,648,125 | ||||||||||||
| TOTAL REVENUE | 24,010,375 | 24,314,948 | 49,227,315 | 38,856,620 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Interest expense | 28,486,953 | 17,147,850 | 55,461,941 | 33,211,187 | ||||||||||||
| Employee compensation and benefits | 6,794,009 | 3,235,699 | 11,947,997 | 6,978,368 | ||||||||||||
| Legal and professional fees | 4,721,568 | 1,155,728 | 7,668,763 | 2,329,357 | ||||||||||||
| Other expenses | 5,938,445 | 2,832,777 | 8,766,169 | 5,573,354 | ||||||||||||
| TOTAL EXPENSES | 45,940,975 | 24,372,054 | 83,844,864 | 48,092,266 | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (21,930,600 | ) | (57,106 | ) | (34,617,549 | ) | (9,235,646 | ) | ||||||||
| INCOME TAX EXPENSE (BENEFIT) | - | - | - | - | ||||||||||||
| NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT | (21,930,600 | ) | (57,106 | ) | (34,617,549 | ) | (9,235,646 | ) | ||||||||
| Earnings (loss) from equity method investment | 599,711 | - | (1,327,032 | ) | - | |||||||||||
| NET INCOME (LOSS) | (21,330,889 | ) | (57,106 | ) | (35,944,581 | ) | (9,235,646 | ) | ||||||||
| Preferred stock dividends | 4,278,218 | 4,338,487 | 8,574,532 | 8,042,971 | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (25,609,107 | ) | $ | (4,395,593 | ) | $ | (44,519,113 | ) | $ | (17,278,617 | ) | ||||
| NET INCOME (LOSS) PER COMMON SHARE | ||||||||||||||||
| Basic | $ | (0.78 | ) | $ | (0.76 | ) | $ | (1.35 | ) | $ | (2.97 | ) | ||||
| Diluted | $ | (0.78 | ) | $ | (0.76 | ) | $ | (1.35 | ) | $ | (2.97 | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
| Basic | 33,011,603 | 5,813,555 | 32,998,246 | 5,813,555 | ||||||||||||
| Diluted | 33,011,603 | 5,813,555 | 32,998,246 | 5,813,555 | ||||||||||||
6