Abacus Life, Inc. (NASDAQ:ABL) Q4 2023 Earnings Call Transcript

Abacus Life, Inc. (NASDAQ:ABL) Q4 2023 Earnings Call Transcript March 21, 2024

ABL isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to Abacus Life Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It’s now my pleasure to introduce Garrett Edson of ICR. Thank you. You may begin.

Garrett Edson: Good day ladies and gentlemen. Thank you for standing by. Abacus Life first participants on this call to the investor webpage www.abacuslife.com/investors for the press release, the investor information and filings with the SEC for a discussion of the risks, then affect the business. Abacus Life specifically refers participants to the presentation furnished today and Form 8-K with Securities 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, can materially affect results. Reference is made to the section titled forward-looking statements in the company’s earnings press release for the fourth quarter of 2023, which is incorporated herein by reference.

We note, forward-looking statements, whether written or oral include, but are not limited to Abacus Life’s expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties and assumptions, including the risk factors set forth in item 1A of our most recent 10-K, which if they materialize, could materially affect results and such forward-looking statements do not guarantee performance in Abacus Life gives no such assurances. Abacus Life is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

In addition, historical data pertaining to the operating results and other performance indicators applicable to Abacus Life are not necessarily indicative of results to be achieved in succeeding periods. I’ll now turn the call over to Jay Jackson, Chief Executive Officer of Abacus Life.

Jay Jackson: Thank you to everyone listening today for your interest in Abacus, and welcome to our 2023 fourth quarter earnings call. With me today is our Chief Financial Officer, Bill McCauley, and after our remarks, we’ll open it up to your questions. We finished off 2023 with another strong quarter of positive results and profitable growth, capping off a record year for Abacus exceeding our previous record year in 2022. As we look to 2024, our differentiated business model has positioned us well to further capitalize on our momentum and with the recent launches of ABL Wealth and ABL Tech, which I’ll discuss in a moment. We are progressing toward leveraging our technology advantages, expanding our total addressable market, and becoming a full-fledged alternative asset manager.

For the fourth quarter of 2023, we grew total revenues 25% year over year to $23.6 million and delivered strong earnings with adjusted EBITDA of $11 million in adjusted net income of $5.9 million. For the full year 2023, we generated total revenues of $79.6 million or 14% growth from the prior year, while growing adjusted EBITDA 13% year over year to $39.3 million and delivered adjusted net income of $29.4 million. In 2023, we increased our new policy originations by 30% to 633 in 2023 and paid over $200 million to policy holders. Much of this growth was driven by our carrier partnerships and expanding reinsurer relationships. Also, during the fourth quarter, our Board of Directors authorized a $15 million stock repurchase program. As of March 19th, 2024, $8.1 million of stock had been repurchased at a weighted average price of $11.20 per share.

There is currently $6.9 million of availability remaining under this program. Additionally, warrant holders have started to exercise their warrants at the strike price of $11.50, and we have received $3.5 million in proceeds to date. Bill will be along shortly to discuss more of the fourth quarter in full year 2023 financial performance in further detail. Our proven business model expert team, wealth of data and innovative technology positions us well to execute on our various strategic initiatives, take advantage of the many exciting opportunities that lie ahead and ultimately create long-term value for our shareholders. Over the past few months, we’ve made considerable strides in launching and expanding our newest initiatives, ABL Wealth and ABL Tech, and I wanted to spend a couple of minutes telling you about how we expect both of them to enhance our business model in the years ahead?

First, as you may recall, in November, we launched ABL Wealth to offer clients custom lifespan-based financial solutions in partnership with one of the country’s leading wealth management platforms for independent wealth management firms. The thesis for ABL Wealth rests in our belief that using lifespan and longevity as a core tool in designing customized personal wealth solutions will fundamentally change the retail financial services industry. At Abacus Wealth, we occupy the intersection of life insurance, lifespan and longevity and wealth management. In 2024, we’ve started to capitalize on our Abacus marketing leads, including the thousands of in-house inquiries, and we are beginning to design custom asset management solutions for our clients.

We will continue to partner with RIAs and broker dealers to expand our product offerings and align our interest as we further progress. In addition, last month, we launched ABL Tech to the pension fund and financial services industries. Over our 20-year history, we have accumulated a trove of longevity data and developed proprietary technology and analytics that drive our investment decision process to acquire policies. Now, ABL Tech seeks to leverage that wealth of data and technology along with AI and advanced algorithms to create a suite of tech-driven solutions for the pension fund and financial services industries. Among the solutions we are providing, mortality verification and participant verification. We are utilizing AI and advanced algorithms to more efficiently verify mortality and participant locations, which will aid pension funds in protecting assets and preventing fraud.

We are also leveraging AI in real-time lifespan data to provide strategic wealth distribution analysis and lifespan valuation, which is crucial for insurers and wealth managers to better forecast the asset value of investor wealth over their lifespan. In addition, we’ve created the Abacus Marketplace, which is a multi-platform, digital portal, enhancing life settlement sector communication and transparency, and which simplifies end-to-end access and processes for clients, advisors, and investors. We expect to see top-line contributions from both ABL Wealth and ABL Tech in 2024. Along with our new initiatives, our core origination and asset management vertical, also known as ABL Longevity Funds continues to hum along well. As we just completed our 20th consecutive year of GAAP profitability while continuing to generate strong margins.

Additionally, our new mutual fund ABL Longevity Growth and Income Fund remains on pace to launch later this year, and we are very excited for its potential. As we move ahead, we remain confident in our business the opportunities within our total addressable core market and in the incredible stability of our asset class. As a reminder, our industry currently only has about 2% market penetration of a 233 billion-plus opportunity with a significant financial incentive to the individuals selling their policies. With new investor interest from both institutions and life insurance companies that’s a significant gap that we believe we can close over time. We will continue to educate policyholders about the value of their policies through our network of over 30,000 financial professionals and through television and digital campaigns for our growing direct-to-consumer channel, and with our expanded verticals and deep data and technology advantages, we are well on our way toward creating a true vertically integrated alternative asset manager with multiple revenue and profit streams.

We remain excited about our historical, current and future trends, as well as our potential for expected origination growth and sustainable profitability. With that, I will now hand it over to our CFO, Bill McCauley to discuss the specifics on our Q4 results and financials.

Bill McCauley: Thanks, Jay, and hello everyone. As Jay mentioned, we delivered another strong quarter of top line growth and profitability across our business. The key driver of our business performance continues to be our highly efficient origination platform. In the fourth quarter of 2023, origination capital deployed increased by approximately 92% to $68.3 million compared to $35.5 million in the prior year period, driven by larger face value policy acquisitions while maintaining 79% growth in policy originations to 208 compared to 116 in the prior year. Total revenue in the fourth quarter 2023 grew by approximately 25% to $23.6 million compared to $18.8 million in the prior year period. The increase was primarily due to strong performance across all segments.

For the full year 2023, revenue increased 14% to $79.6 million compared to $69.7 in the prior year. The increase was primarily attributable to higher policy acquisitions and realized trade revenue. As of December 31st, 2023, Abacus held 296 policies of which 287 are accounted for under the fair value method and nine are accounted for using the investment method, which is cost plus premiums paid. As a reminder, for all policies purchased after June 30th, 2023, the company has elected to account for these under the fair value method going forward. For policies purchased before June 30th, 2023, the company elected to use either the fair value method or the investment method. Revenue from our portfolio servicing segment in the fourth quarter of 2023 was $0.2 million compared to $0.1 million in the prior year period.

Turning to expenses, total operating expenses, excluding unrealized gains and losses on investments and change in fair value of debt for the fourth quarter of 2023 were approximately $18.9 million compared to $4.4 million in the prior year period. We would note that the fourth quarter 2023 total operating expenses included $6.2 million of non-cash stock compensation expense, and $2.5 million of public company-related expenses, both of which did not occur in the prior year period. We also increased sales and marketing expenses by approximately $2 million compared to the prior year, which assisted in accelerating our growth profile in 2023. The company typically realizes the benefit of marketing spend within 90 days to 120 days. Consistent with the fourth quarter of 2023, total operating expenses in the first half of 2024 will be elevated from the prior year period by non-cash equity compensation expenses, as well as ongoing public company expenses that did not occur in the first half of 2023.

We will begin to anniversary non-cash, equity, compensation, and public company expenses in the third quarter of 2024. Adjusted EBITDA for the quarter was $11 million, relatively comparable to $11.1 million in the prior year period. Adjusted EBITDA margin was 47% for the quarter compared to 52% in the prior year period. For the full year 2023, adjusted EBITDA increased 13% to $39.3 million compared to $34.8 million for the prior year. Adjusted EBITDA margin for 2023 was 49% compared to 50% for the prior year. GAAP net loss attributable to stockholders for the quarter was $6.2 million compared to GAAP net income attributable to stockholders of $10 million in the prior year period. On an adjusted basis, excluding non-cash, stock compensation, amortization, and change in fair value of warrant liability, net income for the fourth quarter of 2023 was $5.9 million compared to $9.5 million in the prior year period.

For the full year 2023, adjusted net income was $29.4 million compared to $32.3 million in the prior year. Now, turning to our balance sheet metrics. On an annualized basis, return on equity and return on invested capital for the three-month period ended December 31st, 2023 were 18% and 17% respectively, reflecting our highly profitable business model. As of December 31st, 2023, the company had cash and cash equivalents of $25.6 million, balance sheet policy assets of $124 million and outstanding long-term debt at fair value of $89.1 million. During the fourth quarter, we were pleased to successfully complete our public bond offering using the proceeds to refinance prior debt and reducing the interest rate we pay from our prior debt by approximately 275 basis points.

In summary, we are pleased with our strong results this quarter and continue to deliver double-digit growth on our top line, as well as solid profitability on an adjusted basis. We remain very excited about the growth opportunities ahead and are well-positioned to execute on our long-term plans. I will now turn it back to our CEO, Jay Jackson for our closing comments.

Jay Jackson: Thanks, Bill. To sum up, we believe Abacus Life is well-positioned to capitalize on a large market opportunity within a dynamic sector today. Very few other business models offer 20 years of consistent net income, a $200 billion-plus in growing target market in new growth opportunities such as ABL wealth and ABL Tech. We are proud to be a growth company that has generated consistent long-term profitability. I’d like to thank all of you for joining us today and we appreciate your interest in Abacus Life. We will now field any questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Andrew Kligerman with TD Cowen. Please proceed with your question.

Andrew Kligerman : Good afternoon, Jay and Bill. A question around revenue and origination capital. It looked like the revenue was up 14% year over year. You said higher policy acquisition and realized trade revenue and on origination capital up 46% on larger face and larger face value policy originations and count. The numbers look great. Is this the kind of trend that we should be expecting on both items into ‘24? How are you thinking about ‘24 and revenue and origination capital respectively?

Jay Jackson: Thank you, Andrew. Great to hear your voice as well, and yes, the answer is yes. We are excited about the prospects of 2024. This is a trend that actually started back even a few years ago, and we have seen an increase in the size of the policies that we’re acquiring. And you’ve seen almost year over year now, a larger deployment of capital. But you’ve also seen a significant increase in the number of policies that we’re acquiring. And I think this goes back to one, driven by our ability to market. We’ve been in the market a long time. We’ve got really well-established relationships with financial professionals across the country. We have seen a very positive impact as well on our advertising to increase our direct-to-consumer channel and division.

Where our new policy number of originations, I think is indicative as well, where we were up over 30% over the prior year period. It’s really twofold, right? So, we’re purchasing more contracts that also we have larger face value, which is driving up the amount of capital deployed. And then as you look at it, as a kind of a key driver, that capital deployed figure that would then contribute to your year-over-year growth in top line and bottom line on your adjusted EBITDA. And in fact, I would even highlight, if you look at the prior year period, or year over year in Q4, not just 2023, but if you look at Q4, saw the adjusted EBITDA number, albeit it looked like it was flat year to year, but taking into consideration that we increased our marketing by $2 million in the fourth quarter.

We had public company expenses, another 800,000 in addition to the prior year period, we’re talking about $2.8 million of additional EBITDA, that would’ve been there effectively at 25%. So that would’ve matched the top line, right? You would’ve had a fourth quarter, 25% top line and 25% revenue. But we took that revenue and invested it back into the business to really tee up 2024.

Andrew Kligerman: Got it. So, it sounds like the trend continues into ‘24.

Jay Jackson: It does. And I think that it’s important to us, and it’s important to everyone to understand that we’re going to continue to reinvest back in our business to drive growth. And I think that’s one of the more compelling pieces to our story.

Andrew Kligerman: And maybe on that total operating expenses, if I take out the non-cash pump, I think it was like about $14 million in the quarter, right? Is that kind of a run rate that we should look at, or should we kind of build that up a little bit to your point that you’re reinvesting a lot?

Jay Jackson: Well, I always like to under promise and over deliver. I don’t want to stretch it too thin, but yes, we’re building into that higher net and EBITDA number, and like anything, as you invest into that number, you have higher expenses as you do that, but the net result of that over time is very, very positive. And that’s what you’re seeing.

Andrew Kligerman: Got it. And maybe if I could sneak in one last one, ABL Tech, I mean, I’m just kind of thinking about what’s the revenue potential of that investment. How does that play out maybe this year and then three or four years from now?

Jay Jackson: Sure. I think one way to think about ABL Tech and what we’re doing there is that it’s more than just one line of business. We do valuation and servicing work there. We do a lot of lifespan and longevity work that feeds into other lines of our business. So, when you consider that, you’ll see an uplift in the other areas like ABL Wealth and using that technology and that lifespan technology to do the financial planning utilizing lifespan, I think is very exciting and would also help drive future investment products that we build and design for that. But the other piece that I think is really tangible is we’ve been doing mortality verification for our own accounts and our own funds that we’ve managed for over a decade.

And being able to roll that out to other customers we think is really, really exciting. We’re already signing up customers, significant institutions and insurance companies that utilize that for mortality verification. And when you think about things like the pension fund industry and you think about the size, scale, and scope of that market, the state we’re having conversations with states about how to better manage some of those pension liabilities where they might be overpaying or potentially even dealing with potential fraud? So that market, what’s fascinating is that it’s massive. So, what I don’t want to do is say, hey, next year we’re expecting X. But we do anticipate that line of our business overall to be a significant piece to our total revenue on a go-forward basis growing three and five years out, this would be a significant piece to our revenue and can, and contributor to our revenue.

And the margins on that business are excellent. I think in the next year as we continue to build that, it’ll be incremental, it’ll be slower in the first year, and then you’ll see two, three, four, five in years. This piece of the business really takes off.

Operator: Our next question comes on the line of Wilma Burdis with Raymond James. Please proceed with your question.

Wilma Burdis: Good afternoon, everyone. Could you provide any updates on the mutual fund launch and just maybe talk about the revenue opportunity there?