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): April 22, 2016

 

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))

 

 

 

 

 

 

Item 2.02         Results of Operations and Financial Condition.

 

On April 28, 2016, GWG Holdings, Inc. issued a press release reporting the financial results for its first fiscal quarter ended March 31, 2016.

 

Item 5.03        Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

Effective April 26, 2016, the Board of Directors of GWG Holdings adopted an amendment to its Certificate of Designation for Redeemable Preferred Stock that revised Section 4(a) of the Certificate of Designation to provide that the regular record date to be used for determining the holders of record entitled to receive any payment of dividends is the final business day of the month on which GWG Holdings’ common stock trades or is eligible to trade, subject to the requirement that a holder must have held shares of Redeemable Preferred Stock for more than two business days. Previously, the record date had been the last calendar day of each month.

 

In addition, Section 9(a)(i) of the Certificate of Designation was deleted in its entirety and Section 9(a)(ii) was amended, the result of which deletion and amendment revised the redemption terms of the Certificate of Designation to permit holders to request redemption at any time (thereby eliminating the previous one-year holding requirement), and without volume limitations (thereby eliminating the previous limitation that a holder could request redemption for a maximum of up to 25% of such holder’s shares of Redeemable Preferred Stock). The amendment to Section 9(a)(ii) also revised the redemption fees applicable to a holder who requests redemption of Redeemable Preferred Stock to be: (i) 12% if the redemption is requested before the first anniversary of the original issuance of such shares; (ii) 10% if the redemption is requested on or after the first anniversary and before the second anniversary of the issuance of such shares; (iii) 8% if the redemption is requested on or after the second anniversary and before the third anniversary of the issuance of such shares; and (iv) no redemption fee if the redemption requested on or after the third anniversary of issuance. A copy of the amendment is filed as Exhibit 3.1 to this report. The description of the amendment contained above is qualified in its entirety by the actual text of the amendment.

 

Item 5.07        Submission of Matters to a Vote of Security Holders.

 

GWG Holdings held its annual meeting of stockholders on April 22, 2016. At the meeting, stockholders of GWG Holdings took the following actions:

 

(i)     The stockholders elected seven directors to serve as members of the Board of Directors until the next annual meeting of stockholders. The stockholders present in person or by proxy cast the following numbers of votes in connection with the election of directors, resulting in the election of all director nominees:

 

Nominee   Votes For     Votes Withheld  
Jon R. Sabes     4,854,132       24,087  
Paul A. Siegert     4,854,132       24,087  
Steven F. Sabes     4,854,132       24,087  
Charles H. Maguire III     4,855,432       22,787  
David H. Abramson     4,855,432       22,787  
Jeffrey L. McGregor     4,855,432       22,787  
Shawn R. Gensch     4,855,432       22,787  

 

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(ii)     The stockholders approved an amendment to the GWG Holdings’ Certificate of Designation for Redeemable Preferred Stock. The holders of 4,829,706 shares voted for this proposal; the holders of 19,863 shares voted against this proposal; and the holders of 28,650 shares abstained.

 

(iii)    The stockholders ratified the appointment of Baker Tilly Virchow Krause, LLP as the independent registered public accounting firm of GWG Holdings for the year ending December 31, 2016. The holders of 4,857,183 shares voted for this proposal; the holders of 18,404 shares voted against this proposal; and the holders of 2,632 shares abstained.

 

Solicitation was made and consents were received from the holders of Redeemable Preferred Stock to approve the amendment to the Certificate of Designation discussed above.

 

Item 7.01        Regulation FD Disclosure.

 

As indicated above, on April 28, 2016, GWG Holdings issued a press release.

 

The information in Items 2.02 and 7.01 of this Report on Form 8-K are to be considered filed with the Securities and Exchange Commission. A copy of the press release reporting the information included in Items 2.02 and 7.01 is filed as Exhibit 99.1 to this report.

 

Item 9.01        Financial Statements and Exhibits.

 

(d)      Exhibits .

 

  3.1   Amendment to Certificate of Designation for Redeemable Preferred Stock (filed herewith)
  99.1   Press release dated April 28, 2016 (filed herewith)

 

Exhibit 99.1 is to be considered filed with the Securities and Exchange Commission.

 

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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: April 28, 2016 By: /s/ William Acheson
    William Acheson
    Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit No.   Description
3.1   Amendment to Certificate of Designation for Redeemable Preferred Stock (filed herewith)
99.1   Press release dated April 28, 2016 (filed herewith)

 

 

5

 

Exhibit 3.1

 

ARTICLES OF AMENDMENT OF
CERTIFICATE OF DESIGNATION

of

REDEEMABLE PREFERRED STOCK

 

The undersigned executive officer of GWG Holdings, Inc., a Delaware corporation (the “ Company ”), hereby certifies that the following Articles of Amendment of Certificate of Designation of Redeemable Preferred Stock of the Company were duly authorized and adopted by the Board of Directors of the Company (the “ Board ”) effective as of March 17, 2016, and by the stockholders of the Company (the “ Stockholders ”) effective as of April 26, 2016, pursuant to the provisions of the Delaware General Corporation Law (the “ DGCL ”).

 

A.           The name of the Company is GWG Holdings, Inc.

 

B.            1,448.52 shares of Redeemable Preferred Stock had been issued as of the record date of March 25, 2016.

 

C.            These Articles of Amendment were adopted by the Stockholders pursuant to the provisions of Section 242 of the DGCL at a meeting of the Stockholders, held in accordance with Section 222 of the DGCL, and pursuant to Section 8 of the Certificate of Designation of the Redeemable Preferred Stock of the Company.

 

D.           The resolutions of the Board adopting these Articles of Amendment are set forth below:

 

RESOLVED, that pursuant to the authority vested in the Board by the Company’s Certificate of Incorporation, as amended, and in accordance with the DGCL, Section 242, the Board hereby approves and adopts the following amendments to the Certificate of Designation for the Company’s “Redeemable Preferred Stock,” as follows:

 

1.            Section 4(a) of the Certificate of Designation of the Redeemable Preferred Stock of the Company (the “ Certificate of Designation ”) is hereby amended to read in its entirety as follows:

 

(a)       Holders of Redeemable Preferred Stock shall be entitled to receive for each share of Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or the next following business day thereafter in the event such date is not a business day), when and as declared by the Board of Directors (the “ Preferred Dividends ”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Redeemable Preferred Stock. Preferred Dividends on shares of Redeemable Preferred Stock shall also be payable upon any Redemption Date, as defined below, and upon the final distribution date relating to a Liquidation Event, as defined below. Preferred Dividends shall cease to accrue on shares of Redeemable Preferred Stock on the day immediately prior to any Redemption Date, as defined in Section 9(a) below, and on the final distribution date relating to a Liquidation Event. Regular dividends shall be payable to the holders of record of the Redeemable Preferred Stock as of a regular record date that shall be the final business day of each calendar month, which business day is a day on which the Company’s common stock trades or is eligible for trading on the primary market for such stock, in accordance with the DGCL. Notwithstanding the foregoing, holders of Redeemable Preferred Stock as of a regular record date must have held their Redeemable Preferred Stock for more than two business days (which business days must be a trading day on which the Company’s common stock trades or is eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on such shares of Redeemable Preferred Stock on the next payment date. In the event that the Company’s common stock no longer trades or is eligible for trading on a trading market, the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply. In the case of payment by the Company of dividends in the form of shares of Redeemable Preferred Stock, such stock shall be valued at the Stated Value.

 

 
 

 

2.             Section 9(a)(i) of the Certificate of Designation is hereby deleted in its entirety.

 

3.             Section 9(a)(ii) of the Certificate of Designation is hereby amended to read in its entirety as follows:

 

(ii)           Upon receipt of a written notice from the holder of one or more shares of Redeemable Preferred Stock requesting that the Company redeem all or any portion of such share(s) (the “ Holder Redemption Notice ”), the Company may redeem the applicable Redeemable Preferred Stock for the Redemption Price, as defined in Section 9(b)(i), subject, however, to the applicable redemption fee specified below:

 

(A)        if the Holder Redemption Notice is given prior to the first anniversary of the issuance of such Redeemable Preferred Stock, then a 12% redemption fee shall apply;

 

(B)        if the Holder Redemption Notice is given on or after the first anniversary of the issuance of such Redeemable Preferred Stock, but prior to the second anniversary of the issuance of such Redeemable Preferred Stock, then a 10% redemption fee shall apply; and

 

(C)        if the Holder Redemption Notice is given on or after the second anniversary of the issuance of such Redeemable Preferred Stock, but prior to the third anniversary of the issuance of such Redeemable Preferred Stock, then an 8% redemption fee shall apply; and

 

(D)       if the Holder Redemption Notice is given on or after the third anniversary of the issuance of such Redeemable Preferred Stock, then no redemption fee shall apply.

 

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IN WITNESS WHEREOF, the Company has caused these Articles of Amendment of Certificate of Designation to be executed by the undersigned on this 25th day of April, 2016.

 

  GWG HOLDINGS, INC.
     
  By: /s/ William Acheson
  Name:  William Acheson
  Title: Chief Financial Officer

 

 

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Exhibit 99.1

 

 

GWG HOLDINGS ReportS FIRST Quarter
2016 Financial Results

 

MINNEAPOLIS, MN – April 28, 2016 -- GWG Holdings, Inc. (NASDAQ: GWGH) (“GWG” or “the Company”), a specialty finance company and a leader in the life insurance secondary market, today announced its financial results for the first quarter ended March 31, 2016.

 

Highlights:

 

For the Three Months Ended March 31, 2016

 

● GAAP Financial Information
○ Total revenue of $17.9 million, up 6.4% from the prior year
○ Net income attributable to common shareholders of $1.4 million, or $0.24 and $0.18 per basic and fully diluted share, respectively
● Non-GAAP Financial Information 1
○ Adjusted Non-GAAP income of $13.4 million, or $2.26 per basic share 2
○ Non-GAAP Net Asset Value of $15.56 per basic share as of March 31, 2016 3
● Continued to experience returns on matured policies that when blended with the expected yield of our current portfolio validate our long term pricing and return assumptions
● Recognized $19.2 million in policy benefits from maturities on six life insurance policies
● Purchased 75 policies with $102 million in face value of policy benefits
● Grew the Company’s portfolio of life insurance to over $1.0 billion in face value of policy benefits covering 419 unique lives; a net sequential growth of $83.0 million
● Raised a combined total of $35 million in capital from the sale of the Company’s $1 billion L Bond and Redeemable Preferred Stock offerings combined
● Of the more than 3,500 financial advisors selling GWG’s investment products, 64% are authorized to source policies through GWG’s Appointed Agent Program
● Direct originations from GWG’s Appointed Agent Program accounted for 23% of all life insurance policies in GWG’s current pipeline and 13% of policies purchased for the quarter
● Maintained a total liquidity position of $66.7 million as of March 31, 2016 4

 

 

(1) See non-GAAP Financial Measures below.
(2) Our credit facility requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our net income on a non-GAAP basis.
(3) Net asset value per share is calculated as present value of the Company’s portfolio of life insurance policies using a discount rate of 6.91% (equal to the Company’s weighted average cost of financing) plus cash on hand and policy benefits receivable less the sum of the Company’s interest bearing debt
(4) Includes cash, cash equivalents, restricted cash, and policy benefits receivable plus amounts available on the senior credit facility.

 

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Management Commentary

 

“This quarter marks our ten year anniversary of being in business and we are pleased to have celebrated this milestone with continued positive momentum, further strengthening our leadership position in the secondary life insurance market,” said Jon Sabes, GWG Holdings’ Chief Executive Officer. “Our life insurance portfolio surpassed the $1.0 billion mark in face value of benefits, a year-over-year net increase of 36%. In addition, we had another strong quarter of capital raise and are well positioned to lead the growth and development of the largely untapped life insurance secondary market. We are confident that we are on our way to another successful year for GWG.”

 

“During the first quarter of 2016, GWG’s proprietary Appointed Agent program has continued to make significant progress in expanding our network of insurance and financial advisors who can source life insurance policies for GWG,” said Michael Freedman, GWG’s President. “Almost two-thirds of the financial advisors in GWG’s syndicate of broker dealers selling our investment products have been approved to source life insurance policies for GWG. In addition, GWG is able to process the increased volume of policies we are purchasing through our own Policy Acquisition Center, which allows us to evaluate, price, and purchase policies in a time and cost efficient manner.”

 

“GWG continues to create value for our shareholders by growing the number of unique lives in our life insurance portfolio and moving towards greater actuarial diversity and predictability,” said William Acheson, GWG Holdings’ Chief Financial Officer. “We believe the cash flows received from our portfolio over the last several quarters, in terms of absolute dollars and as a percentage of the portfolio face amount, is indicative of this progress.”

 

First Quarter 2016 Financial Summary

 

Total revenue for the three months ended March 31, 2016 was $17.9 million, as compared to $16.8 million for the same period in 2015. Realized gain from policy benefits was $14.6 million and $25.0 million for the first quarter of 2016 and 2015, respectively. The Company recognized $19.2 million of life insurance policy benefits in the first quarter of 2016 versus $28.6 million in the same period of 2015. Included in the increase in total revenue was an increase in revenue of approximately $8.0 million as a result of unrealized gains associated with new life insurance policy purchases.

 

Total operating expenses for the first quarter of 2016 were $15.7 million, as compared to $11.0 million for the same period in 2015. Most of the increase was due to higher interest expenses relating to higher debt balances outstanding and increased expenditures on sales, marketing, and business development, including employee compensation and benefits, relating to servicing our growing family of independent financial advisors and life insurance professionals.

 

For the quarter ending March 31, 2016 total net income attributable to common shareholders was $1.4 million, or $0.24 and $0.18 per basic and fully diluted share, respectively. This compares to net income of $3.6 million attributable to common shareholders or $0.62 and $0.46 per basic and fully diluted share, respectively, for the same period in 2015. The decline for the first quarter of 2016 was driven by lower realized gains associated with the receipt of life insurance policy benefits as compared to the year earlier period, partially offset by higher unrealized gains associated with new life insurance policy purchases.

 

Liquidity & Capital Resources

 

The Company had a combined balance of cash, cash equivalents, and available borrowing capacity from its senior credit facility of $66.7 million as of March 31, 2016.

 

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Life Insurance Portfolio Summary

 

Total portfolio face value of policy benefits   $ 1,027,821,000  
Average face value per policy   $ 2,210,000  
Average face value per insured life   $ 2,453,000  
Average age of insured (yrs.)*     82.4  
Average life expectancy estimate (yrs.)*     6.7  
Total number of policies     465  
Number of unique lives     419  
Demographics     72% Males; 28% Females  
Number of smokers     12  
Largest policy as % of total portfolio     0.97 %
Average policy as % of total portfolio     0.22 %
Average annual premium as % of face value     3.31 %

 

* weighted averages.

 

Distribution of Policies and Policy Benefits by Current Age of Insured

 

Min Age   Max Age   Policies     Policy Benefits     Wtd. Avg. Life Expectancy (yrs.)     Percentage of Total Policy Benefits  
                             
90   95     37     $ 76,183,000       2.82       7.41 %
85   89     129     $ 285,371,000       4.88       27.76 %
80   84     134     $ 354,095,000       6.74       34.46 %
75   79     86     $ 197,392,000       8.75       19.20 %
70   74     49     $ 75,207,000       9.55       7.32 %
65   69     30     $ 39,573,000       10.74       3.85 %
Total         465     $ 1,027,821,000       6.68       100.0 %

 

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Trailing Twelve Month Benefits and Premiums Paid

 

For the dates set forth below, the following table illustrates the total amount of face value of policy benefits owned, the trailing twelve months of life insurance policy benefits recognized, and premiums paid on our portfolio. The trailing 12-month benefits/premium coverage ratio indicates the ratio of policy benefits received to premiums paid over the trailing 12-month period from our portfolio of life insurance policies.

 

Quarter End Date  

Portfolio

Face Amount

   

12-Month

Trailing

Benefits Collected

   

12-Month

Trailing Premiums Paid

   

12-Month

Trailing

Benefits/Premium

Coverage Ratio

 
March 31, 2012   $ 482,455,000     $ 4,203,000     $ 14,977,000       28.1 %
June 30, 2012     489,255,000       8,703,000       15,412,000       56.5 %
September 30, 2012     515,661,000       7,833,000       15,837,000       49.5 %
December 31, 2012     572,245,000       7,350,000       16,597,000       44.3 %
March 31, 2013     639,755,000       11,350,000       18,044,000       62.9 %
June 30, 2013     650,655,000       13,450,000       19,182,000       70.1 %
September 30, 2013     705,069,000       18,450,000       20,279,000       91.0 %
December 31, 2013     740,648,000       16,600,000       21,733,000       76.4 %
March 31, 2014     771,940,000       12,600,000       21,930,000       57.5 %
June 30, 2014     784,652,000       6,300,000       22,598,000       27.9 %
September 30, 2014     787,964,000       4,300,000       23,121,000       18.6 %
December 31, 2014     779,099,000       18,050,000       23,265,000       77.6 %
March 31, 2015     754,942,000       46,675,000       23,786,000       196.2 %
June 30, 2015     806,274,000       47,125,000       24,348,000       193.6 %
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 %

 

Conference Call Details

 

Management will host a conference call today at 4:30 pm Eastern Time to discuss the Company's financial results. The conference call number for U.S. participants is (844) 423-9895 and the conference call number for participants outside the U.S. is (716) 247-5865. The conference ID number for both conference call numbers is 92046091. The call may also be accessed via webcast on the Company’s website at investors.gwglife.com .

 

A replay of the call will be available through Thursday, May 5, 2016 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (international), using the passcode 92046091.

 

About GWG Holdings, Inc.

 

GWG Holdings, Inc. (NASDAQ: GWGH) is a specialty finance company and a leader in the secondary market for life insurance. GWG is dedicated to creating a vibrant secondary life insurance market for the economic benefit of seniors seeking post-retirement financial solutions, investors seeking yield derived from non-correlated assets, financial advisors seeking value-added products and services for their clients, and shareholders seeking to benefit from the growth of this marketplace. As of March 31, 2016, GWG’s growing portfolio consisted of over $1.0 billion in face value of benefits. Since 2006, GWG has purchased nearly $2 billion in life insurance policy benefits and paid seniors over $335 million for their policies.

 

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For more information about GWG Holdings, email  info@gwglife.com  or visit  www.gwglife.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 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, specifically including our registration statement on Form S-1 and any amendments and post-effective amendments thereto. 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.

 

Investor Contacts:

Larry Clark (310) 622-8223

Kristen Papke (310) 622-8225

Financial Profiles, Inc.

GWGH@finprofiles.com

 

Media Contacts:

Rose Reifsnyder

Senior Vice President, Marketing

GWG Holdings, Inc.

(612) 840-7204

rreifsnyder@gwglife.com

 

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GWG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    March 31,
2016 		    December 31, 2015  
A S S E T S
Cash and cash equivalents   $ 10,998,625     $ 34,425,105  
Restricted cash     19,828,620       2,341,900  
Investment in life settlements, at fair value     387,402,111       356,649,715  
Secured MCA loans     4,235,442       -  
Policy benefits receivable     15,912,839       -  
Other assets     2,804,325       2,461,045  
TOTAL ASSETS   $ 441,181,962     $ 395,877,765  
                 
L I A B I L I T I E S & S T O C K H O L D E R S’ E Q U I T Y
                 
LIABILITIES                
Revolving credit facility   $ 82,304,099     $ 63,279,596  
Series I Secured Notes payable     18,226,541       23,287,704  
L Bonds     301,924,332       276,482,796  
Notes payable to related parties     1,760,000       -  
Accounts payable     2,119,791       1,517,440  
Interest payable     12,915,598       12,340,061  
Other accrued expenses     1,397,378       1,060,786  
Deferred taxes, net     2,819,697       1,763,968  
TOTAL LIABILITIES   $ 423,467,436     $ 379,732,351  
                 
STOCKHOLDERS’ EQUITY                
                 
CONVERTIBLE PREFERRED STOCK                
(par value $0.001; shares authorized 40,000,000; shares outstanding 2,713,246 and 2,781,735; liquidation preference of $20,349,000 and $20,863,000 on March 31, 2016 and December 31, 2015, respectively)     20,274,155       20,784,841  
                 
REDEEMABLE PREFERRED STOCK                
(par value $0.001; shares authorized 100,000; shares outstanding 1,028 on March 31, 2016)     949,938       -  
                 
COMMON STOCK                
Common stock (par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,948,290 and 5,941,790 on March 31, 2016 and December 31, 2015)     5,948       5,942  
Additional paid-in capital     17,204,940       17,149,391  
Accumulated deficit     (20,720,455 )     (21,794,760 )
TOTAL STOCKHOLDERS’ EQUITY     17,714,526       16,145,414  
                 
TOTAL LIABILITIES & EQUITY   $ 441,181,962     $ 395,877,765  

 

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GWG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

 

    Three Months Ended  
   

March 31,
2016

    March 31,
2015 		 
REVENUE            
Gain on life settlements, net   $ 17,713,712     $ 16,783,409  
Interest and other income     190,181       49,296  
TOTAL REVENUE     17,903,893       16,832,705  
                 
EXPENSES                
Interest expense     9,660,386       7,176,534  
Employee compensation and benefits     2,466,197       1,727,917  
Legal and professional fees     1,206,128       578,144  
Other expenses     2,412,160       1,478,848  
TOTAL EXPENSES     15,744,871       10,961,443  
                 
INCOME BEFORE INCOME TAXES     2,159,022       5,871,262  
INCOME TAX EXPENSE     1,084,717       2,609,371  
                 
NET INCOME     1,074,305       3,261,891  
Income attributable to preferred shareholders     342,962     353,155
INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ 1,417,267     $ 3,615,046  
                 
NET INCOME PER COMMON SHARE                
Basic   $ 0.24     $ 0.62  
Diluted   $ 0.18     $ 0.46  
                 
WEIGHTED AVERAGE SHARES OUTSTANDING                
Basic     5,942,790       5,870,193  
Diluted     7,987,321       7,940,645  

 

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Non-GAAP Financial Measures

 

GWG uses non-GAAP financial measures for evaluating financial results, planning and forecasting, and maintaining compliance with covenants contained in borrowing agreements. The application of current GAAP standards during a period of significant growth in the Company’s business, in which period the Company is building a large and actuarially diverse portfolio of life insurance, results in current period operating performance that may not be reflective of the Company’s long-term earnings potential. Management believes that the Company’s non-GAAP financial measures permit investors to better focus on this long-term earnings performance without regard to the volatility in GAAP financial results that can occur during this phase of growth.

 

Non-GAAP financial measures disclosed by GWG are provided as additional information to investors in order to provide an alternative method for assessing our financial condition and operating results. These non-GAAP financial measures are not in accordance with GAAP and may be different from non-GAAP measures used by other companies, including other companies within our industry. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for comparable amounts prepared in accordance with GAAP. A reconciliation of GAAP to the non-GAAP financial measures described above can be found below.

 

Adjusted Non-GAAP Net Income . Our credit facility requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our net income on a non-GAAP basis.

 

   

Three Months Ended

March 31,

 
    2016     2015  
GAAP net income   $ 1,074,305     $ 3,261,891  
Unrealized fair value (gain) loss (1)     (11,531,553 )     1,893,845  
Adjusted cost basis increase (2)     15,367,047       12,229,201  
Accrual of unrealized actuarial gain (3)     8,178,975       4,241,446  
Total adjusted non-GAAP income (4)   $ 13,088,774     $ 21,626,383  
Adjustments to income     342,962       353,155  
Non-GAAP income attributable to common shareholders   $ 13,431,736     $ 21,979,538  
Net income per share:                
Basic   $ 2.26     $ 3.74  
Diluted   $ 1.68     $ 2.77  
Average shares outstanding:                
Basic     5,942,790       5,870,193  
Diluted     7,987,321       7,940,645  

 

(1) Reversal of unrealized fair value gain of life insurance policies for current period.
(2) Adjusted cost basis is increased to include those acquisition and servicing expenses which are not capitalized under GAAP.
(3) Accrual of actuarial gain at expected internal rate of return based on the investment cost basis for the period.
(4) We must maintain an annual positive consolidated net income, calculated on a non-GAAP basis, to maintain compliance with our revolving credit facility with DZ Bank/Autobahn.

 

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Non-GAAP Net Asset Value. The non-GAAP net asset value attempts to measure the economic value of the Company’s common equity by netting interest-bearing debt and the redemption value of the Company’s outstanding Series A preferred stock against the value of the Company’s portfolio of life insurance (discounted at our weighted-average cost of financing) and cash and cash equivalents at the end of the measurement period. Management believes this is a useful way to view the common equity value attributable to the current yield spread in the Company’s portfolio of life insurance.

 

    As of
March 31, 		    As of
December 31, 		 
    2016     2015  
Life insurance portfolio policy benefits   $ 1,027,821,000     $ 944,844,000  
Discount rate of future cash flows     6.91 %     6.98 %
Net present value of life insurance policy benefits   $ 478,483,000     $ 435,738,000  
Cash and cash equivalents   $ 30,827,000     $ 36,767,000  
Policy benefits receivable   $ 15,913,000     $ -  
Interest bearing debt   $ (410,350,000 )   $ (370,760,000 )
Preferred stock redemption value   $ (22,384,000 )   $ (22,949,000 )
Net asset value   $ 92,489,000     $ 78,796,000  
Per share   $ 15.56     $ 13.26  
Shares outstanding (basic)     5,942,790       5,941,790  

 

The discount rate used in this calculation is our weighted-average cost of financing and is separate and distinct from the discount rate used to determine the GAAP fair value of the portfolio of life insurance policies as described in our most recent form 10-K.

 

This press release corrects the press release titled “GWG Holdings Reports First Quarter 2016 Financial Results,” released at 8:15 AM EDT on April 28, 2016. In the earlier press release, the Non-GAAP Net Asset Value appeared as $12.89 instead of $15.56, the correct amount.

 

 

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