Abacus Life, Inc.

Greetings, and welcome to the Advocates Life first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Garrett Edson, Managing Director at ICR. Thank you. You may begin.

Good day, ladies and gentlemen. Thank you for standing by. Abacus Life refers participants on this call to the investor webpage www.abacuslife.com slash investors for the press release, the investor information, and filings with the SEC for a discussion of the risks that can affect the business. Abacus Life specifically refers participants to the presentation furnished today on Form 8K with the Securities and Exchange Commission and to remind listeners that some of the comments today may contain forward-looking statements and as such will be subject to risks and uncertainties which, if they materialize, could materially affect results. Reference is made to the section titled Forward-Looking Statements in the Company's Earnings Press Release for the First Quarter of 2024, 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 , which, if they materialize, could materially affect results and such forward-looking statements do not guarantee performance, and Abacus Life gives no such assurances. Abacus Life is under no obligation, 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 will now turn the call over to Jay Jackson, Chief Executive Officer of Abacus Life.

Thank you to everyone listening today for your interest in Abacus, and welcome to our 2024 First 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 kept the momentum rolling in the first quarter of 2024, delivering another strong quarter of positive results and profitable growth, while further strengthening our balance sheet. Our relentless execution continues to validate our differentiated business model as a leading market maker and alternative asset manager. For the first quarter of 2024, more than doubling total revenues year over year to $21.5 million and delivered another quarter of strong earnings, growing adjusted EBITDA by 38% to $11.6 million and generating adjusted net income of $6.7 million. Bill will be along shortly to discuss more of our first quarter financial performance in further detail. On prior calls, we've highlighted our more enhanced sales and marketing spend, as we saw clear opportunities to expand our share of the market and noted that we would begin to see the results approximately one quarter later. That's exactly what happened in the first quarter, as our investments in marketing helped drive a 59% year-over-year increase in direct-to-consumer originations. As part of our strategy, we intend to continue investing thoughtfully in our marketing, which we believe is an excellent use of capital to drive our growth over the long term. We are also particularly pleased with our adjusted EBITDA performance, which was driven by higher originations along with an increase in our carrier buyback program. As we've noted on prior calls, Our continued growth in both revenue and adjusted EBITDA is a testament to the partnerships we've cultivated with our carriers and reinsurers over the years. Also in the quarter, we successfully raised an additional $25 million of capital via our 9.75% notes and repurchased over $11 million of our shares since the stock repurchase program's inception in December 2023. Since the end of the first quarter, we also significantly strengthened our senior management team with two key additions. First, we are thrilled to bring on board Elena Plesko as our new chief capital officer. Elena brings to Abacus a wealth of investment experience and joins us after serving as the co-head of specialty finance at KKR, where she invested throughout multiple asset classes. At Abacus, she will oversee our capital management initiatives, further optimize our financial structure, and help facilitate our national and ultimately international expansion. We've known Elena for years, and she is a perfect complementary fit for Abacus as we progress in enhancing our investment management services. Welcome, Elena. And a few weeks ago, we are excited to add Fei Shui as Vice President of ABL Wealth. Faye comes to us from Dynasty Financial Partners, where she served as a strategic advisor to some of the largest and most successful registered investment advisors in the country, particularly with respect to alternative assets. With nearly two decades of experience in asset and wealth management, she is the ideal person to oversee the ongoing build-out at ABL Wealth and to bring our unique, customized offerings, including lifespan-based financial solutions to our clients and the broader RIA community. Faye has already hit the ground running, and we couldn't be happier to have her on board. We also continue to make strides in enhancing ABL tech in recent months, as the use of our proprietary technology and wealth of longevity data to create bespoke solutions for the pension fund and financial services industries is finding an audience. We continue to expect to see top-line contributions from both ABL Wealth and ABL Tech later this year. Before turning the call over to Bill, I wanted to highlight our upcoming Investor Day and Longevity Summit, taking place on June 13th. The summit is a one-day event focused on how lifespan data can be applied to financial products, and we will also take investors on a deeper dive into our business model, our products, and the exciting future of Abacus. We are thrilled to have gathered some of the top professionals in the field of longevity and lifespan, and they will be at the summit to share their outlook on lifespan and how it will impact the future of financial planning. Our panelists include Dr. Peter Attia, author of the number one New York Best Times seller, Outlive, The Science and Art of Longevity. Tina Al-Rasad, a professor at Northeastern University and an expert in lifespan-based data science and AI. Dr. Joseph Coughlin. He's the head of the MIT Age Lab. Steve Grasso, CNBC market analyst. James Morrow, the CEO of Caledon Capital. And Cheryl Penny, president and CEO of Dynasty Financial Partners. If you are interested in attending or joining the live stream, please email our investor relations department at investors at abacuslife.com to receive an invitation. To sum up, We remain confident in our business, the opportunities within our 230 billion plus total addressable core market, and in the incredible stability of our asset class. We are continuing 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. Meanwhile, Our expanded verticals and deep data and technology advantages are helping us grow our vertically integrated alternative asset manager with multiple revenue and profit streams. With our proven business model, first-class expert team, and our trove of proprietary data and technology, we remain well positioned for sustainable and profitable growth and ultimately create long-term value for our shareholders. With that, I will now hand it over to our CFO, Bill McCauley, to discuss the specifics on our Q1 results and financials.

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 first quarter of 2024, origination capital deployed was $33.3 million, compared to 34.4 million in the prior year period, while we grew policy origination 6% to 119 compared to 112 in the prior year period. Total revenue in the first quarter 2024 more than doubled to 21.5 million compared to 10.3 million in the prior year period. The increase was primarily due to strong performance across all segments. As of March 31, 2024, Abacus held 322 policies, of which 314 are accounted for under the fair value method, and eight are accounted for using the investment method, which is cost plus premiums paid. As a reminder, for all policies purchased after June 30, 2023, the company is elected to account for those under the fair value method going forward. For policies purchased before June 30, 2023, the company elected to use either the fair value method or the investment method. Revenue from our portfolio servicing segment in the first quarter of 2024 was $0.2 million compared to $0.3 million in the prior year period. Turning to expenses, total operating expenses, excluding unrealized gains and losses and the change in fair value of debt, for the first quarter of 2024 were approximately 15 million compared to 1.4 million in the prior year period. We would note that first quarter 2024 total operating expenses included 5.8 million of non-cash stock compensation expense and 800,000 of public company related expenses, both of which did not occur in the prior year period. We also increased sales and marketing expense by approximately 1.2 million compared to the prior year period, which assisted in accelerating our growth profile. The company typically realizes the benefit of marketing spend within 90 to 120 days. Consistent with our last few quarters, total operating expenses in the second quarter 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 second quarter of 2023. We will begin the anniversary non-cash equity compensation and public company expenses in the third quarter of 2024. Adjusted EBITDA for the quarter grew 38% to 11.6 million compared to 8.4 million in the prior year period. Adjusted EBITDA margin was 54% for the quarter compared to 81% in the prior year period. Gap net loss attributable to stockholders for the quarter was 1.3 million compared to gap net income attributable to stockholders of 8.1 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 first quarter of 2024 was 6.7 million compared to 7.6 million in the prior year period. Now turning to our balance sheet metrics, on an annualized basis, adjusted return on equity and adjusted return on invested capital for the three-month period ended March 31st, 2024, were 16 percent and 15 percent respectively, reflecting our highly profitable business model. As of March 31st, 2024, the company had cash and cash equivalents of $65.4 million, balance sheet policy assets of $126.9 million, and outstanding long-term debt at fair value of $131.4 million. During the first quarter, we were pleased to successfully raise an additional $25 million through our 9.875% fixed rate senior notes, while also repurchasing shares through our buyback program. As of May 6, 2024, we had repurchased approximately 966,000 shares at an average share price of $11.41. There is $4 million of availability remaining under the program. In summary, we are pleased with our strong results, delivering a quarter of triple-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.

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 $230 billion-plus in growing target market, and 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 you all for joining us today, and we appreciate your interest in Abacus Live. We will now field any questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Wilma Burtis with Raymond James. Please proceed with your question.

Hey, good morning, everyone. Could you talk a little bit about how much you currently bought back under your primary carrier relationship? Thank you.

Thank you, Wilma. Hey, great to hear from you.

You know, the specifics on the dollar amount that we're working with on the carrier buyback program, is not an actual figure that we're putting out publicly at this point just due to confidentiality in relationship to their reported earnings as well. So what I can tell you is that it's ongoing, it's been increasing, and we look forward to continuing to grow that relationship and many more.

Okay, thank you. And then could you talk a little bit about the IRRs of the business you booked in 1-2-24 and the volumes you could have generated at various IRR levels? Thank you.

Thank you, Wilma. The IRRs that we're typically generating, the way that I like to look at it is I go right to our ROE. So if you look at our return on equity in Q1, it was at 16%. I think ROIC was around 15%. which is in line with where we're forecasting. When we price and purchase any of these policies, that's very much in line with where we price them at. So we haven't seen any significant degradation in returns relative to any of the policies that we're purchasing at this point. I think that from our position, the opportunity continues to grow. We're seeing more policies come through our platform than we have capital to purchase. So, you know, we're always continuing to seek and look for, you know, stronger sources of capital so that we can continue to purchase all of the policies that our platform is generating versus sending those directly to third parties.

Thank you. And one last one, and then I'll recue. But could you provide an update on the mutual fund launch? Thanks.

Sure. We have filed for a 40 Act mutual fund and interval fund. That process is still happening. We're making significant progress in educating the SEC on our industry and our asset. This would be the first type of fund that the SEC has approved in this specific asset for that particular structure. So we're very confident. based upon the progress that we're currently making, and we fully expect that product to be out in 2024. But in the meantime, we're also having a lot of success with our GPLP products that we continue to raise capital for on a monthly basis, and that is a yield-based product, and you can see that reflected inside the balance sheet.

Thank you.

As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Andrew Kligerman with TD Securities. Please proceed with your question.

Hey, good morning. The first question is around origination capital deployed, $33.3 million. And I think, Jay, it's probably like the low seasonal quarter is one queue. It kind of picks up in the second half of the year. The question is around the pipeline. Like, could you put to work a lot more than that? How much growth do you see in putting origination capital to work?

Sure. Thank you, Andrew. Great to hear from you.

The pipeline for us is quite strong, falling in line with historical trends. And I think you're very astute to pick up from if you look at 2023 and the numbers that we had put out, you start to see this progression as the calendar year progresses. And so we feel that, you know, when we look at the second quarter and where we are in origination position, I think one indicator is that the number that we put out, even though you saw that the origination capital deployed was relatively flat, the number of policies was up. And in addition to that, we saw a significant increase in our direct to consumer channel, up nearly 59%, which is, to me, an indication of the work that we're putting into our advertising. As we said in the fourth quarter, We increased our advertising spending in the fourth quarter of 2023 by almost $2 million, and we're starting to see some of the results of that, certainly in the first quarter, and we believe that will continue into the second and throughout the year.

I see. So it sounds like there's kind of a growing emphasis on direct-to-consumer. Would that be right?

I think it's a growing emphasis on education across the board, right? Focusing on consumers and what we referenced there is that we're advertising on channels that would include both policyholders as well as financial professionals. A big target of our advertising are on stations like CNBC, Fox Business, where traditionally you'll see financial professionals be the primary audience and then with core news media outlets in the afternoon and evening. I think that it's starting to have a significant impact across the board that first and foremost, most people still aren't aware that this financial option even exists for them. And in that advertising effort, we're able to actually help improve those numbers. And you're starting to see some of the results of that.

And if I could sneak one or two more quick, quick questions in just general and admin at 11.3 million. I guess if I took out the stock-based comp, which could kind of be a little bit lumpy, and then maybe the $800,000 of public company expense seems like that's going to be normal. But what's a good run rate for general and admin expenses, you know, in terms of trying to model that?

Hi, Andrew. It's Bill. Thanks for the question.

And I think To your point, if you were to take out the stock-based compensation, which what's running through the total operating expense is about $5.8 million, and then if you take out the depreciation and amortization as well, I think when you remove those two large items, that gives you a good run rate of what you would expect. I guess the one caveat I would put in there is that you know, as we continue to see or if we continue to see pipeline and origination growth throughout the year, we increase staffing in order to accommodate that.

I see. And do you envision that staffing will grow significantly as the year progresses?

Not significantly, but I would expect that as originations increase and the investor by the carrier buyback program continues to increase as well, that we would add some staffing, but not significantly.

Got it. Thanks so much. Thank you.

Thank you. Our next question comes from the line of Matthew Howlett with B Riley Securities. Please proceed with your question.

Oh, hey, Jay. Hey, Bill. Hey, Matt. Hi, Matt.

Hey, guys, thanks for taking my question. Hey, look, I mean, congratulations on a terrific quarter. The active management revenue was just very strong again this quarter, very consistent with last quarter. Just diving a little deeper into it, was there anything in terms of the policies you sold to third parties or what you held, anything just different in the quarter, any update on margins? And I want to ask you about holdings and these things clearly have long-term much better IRRs than just flipping them. So talk to me about what you're finding in value, how many you want to hold and so forth, but just a little update on margins, what you sold in the quarter and so forth.

Sure. I'll start. I'll have Bill probably weigh in a little bit too. Thanks for the question, Matt. On a margin basis, there wasn't anything really out of the ordinary with the exception that we did have some larger trading specifically back to some of our carriers and, and, As we saw that increase occur, that certainly improves margins. But what it also does is it goes to your other question, which is in relationship to how much we would hold. So if we're selling back to, let's say, a carrier, we're going to sell that paper and not going to hold that on our balance sheet, while the other ones we might hold on our balance sheet for a little bit longer. I think the way to think about our business on a go-forward basis is our intent is to remain balance sheet light and keep a larger percentage of those policies, what I would say is an act of management, meaning that they're in motion and realizing those returns with some of what we would deem our best ideas to let those mature a little bit longer rather than sticking to where we are today on an average hold of under six months. to potentially being something much longer in that, you know, around a year or two on some of those better ideas. And I think as we see more capital recycled on the balance sheet, you'll start to see that increase as the percentage of policies that we hold beyond six months would increase to where they are today. Bill, if you want to add anything to that.

No, nothing to add. Just echoing Jay's comments.

In other words, if you can find policies that you can hold a bit longer, You know, they can just really appreciate it. Then you can turn around and sell them at a much attractive value. It's just sort of a way of optimizing capital. Is that how to think about it?

It is. And in addition to that, within the first one to three years of any distribution curve, you're going to have some experiences where you have a few of these policies mature, and those would lead to significant multiples and returns ultimately on the balance sheet. And we think that on some cases, we should be taking advantage of that versus trading those right away. So when we think about how these policies mature a little bit, maybe letting them age and season a little bit longer gives us a better opportunity to pick up some of the front end of that distribution curve. But in addition to that, having them accelerate potentially in a better rate of return versus what we would potentially trade it at today.

All else being equal, the returns of the company, the ROEs, should improve. I mean, that continues to manifest itself.

That's correct.

Terrific. And then, you know, look, I think you added on a little bit more to that baby bond you have out there. The question is, given how fast you turn over capital and you can trade these things as fast as you want, what's the appetite to take on some more leverage over time? I mean, given your unlevered IRRs are at least mid-teens here. I mean, it's clearly very creative to shareholders that you continue to raise leverage. you know, debt capital, especially at a nine, maybe below 9%, right? Can you just comment on when you look at Jay, like, you know, how you see the balance sheet shaping up? I mean, how much capacity can you just issue debt?

Yeah, you touched on two issues here is that what's our excess capacity and then what's the best way to finance that excess capacity? The excess capacity that we see on a monthly basis being generated from our platform is is as much as 30 to 40% more than what we're currently spending, which means that we have a significant amount of room to deploy more capital. Now the question is, how do you best finance that opportunity? Is it done with debt? Leverage is interesting. We're certainly not taking anything off the table, but potentially there could be the opportunity where we use some equity financing where we don't have the interest carry But at ROEs in the mid-teens and higher, depending on the period, equity financing is also a very appealing option, which also addresses more specifically our float and liquidity of the stock. So I think everyone saw on Friday there was a public filing where we're considering and looking at that option now.

Right. And some of those warrants could get exercised. That could be capital into the company and so forth. It makes total sense. And we look forward to you know, for more capital and more growth in the company. And just one final question, maybe I missed it. I love the radio ads. I see you on TV, Jay. So how much, you know, clearly the marketing's having an impact. Anything to earmark in terms of what we can expect this year to spend? Because clearly it's having an impact.

Right now, our intent is to continue to increase our spend and do the marketing and continue the marketing in a smart and thoughtful way. We are doing things a little bit different in the sense of adding to that marketing through making an open investor day and longevity summit where we're bringing in some of the top professionals in the space of lifespan and longevity to really drive that education home that you should be placing a value on your lifespan and how that value then correlates to the value of the underlying financial products, such as your life insurance policy or other financial services that you might have. You've heard me talk frequently about in the last two calls about what's happening in our ABL wealth as we added FAYE. And what's also going to be happening within our ABL tech division, utilizing that lifespan data and mortality verification data to help optimize pension funds and endowments. I think it's going to continue to be a growing sector with what we do. So our advertising in general is certainly becoming more broad. And right now, as we look at our cost of acquisition per customer per lead, we have not gotten to that point where we're starting to see that cost change significantly. What that means is that there's a lot of run room here still to do in advertising, and we're still seeing effectively dollar for dollar on the amount of money that we spend in advertising to the success that we have in acquiring new policies. But, you know, also, you know, potentially gathering new clients within our ABL wealth channel. Terrific.

I'm sorry. What was the date of that summit or that investor day? You have that out already, correct?

June, June 13th. So, um, we, we made that announcement on the call here today. It's going to be here in Orlando. We've got some, again, some of the top speakers and professionals would love to have you come Matt. And for those on the call, um, and you, You know, that'll be a live event. In addition to that, we'll have a live stream. So very exciting. And again, broadening this message, we expect to have media sources there as well. And, you know, it's the type of event that we don't have sponsors. It's just Abacus. And we're talking about Abacus's exciting future as the investor day. And then we're talking about how all of this lifespan data can be utilized in educating consumers and financial professionals across the country.

Great.

I look forward to attending.

Awesome, we look forward to seeing you.

Thank you. Our next question is a follow-up from the line of Wilma Burtis with Raymond James. Please proceed with your question.

Hey, good morning. Thanks for taking my follow-up. Nice hires in the quarter. Are there any other areas of management you expect to build out going forward? Thanks.

Thanks, Wilma.

Thank you, and yes, we are very proud of the new hires we have. both very successful people who had outstanding careers in other firms. And honestly, we're grateful to have them join our team. As we continue to expand, we anticipate adding very strategic personnel, particularly in the ABL Wealth Channel. When it comes to the Life Insurance Division, where we're acquiring policies, as Bill highlighted, we do plan on continuing to expand the underwriting in that division As those relationships go, we've solved it. an algorithm that helps us understand how much labor we need to meet the increased demand of policy origination as well. So we do expand that. And then in the ABL tech side, we're continuing to add coders and other data type folks to that division as well. So the thing to think about when we're looking at labor in general is that we add it based upon need and potential future growth. So it makes sense to us that we would add Atlanta and our capital markets as we're you know, really taking a look at things like, you know, what are some of the strategic partnerships that we could have on a go forward basis, either through partnership or through acquisition. And then you have Faye, who's really taking the lead in our ABL Wealth Channel, working with RAs and advisors, educating them on everything that we do, including our financial products.

Okay, thank you. And then last one for me. Have there been any additional opportunities to deploy Advocates Tech that you've identified early in the year? And could you talk a little bit about the pipeline going forward for Abacus Tech as well? Thanks.

Sure. Within Abacus Tech or ABL Tech, we are in several what they call test runs with large pension funds as well as very large reinsurers and others as work. you know, entering that asset, they want to have more confirmation of the data. And those have been very, very successful in some of those initial tests. So, you know, we're starting to see that now where we're moving towards full-time signups of those, of those companies. So as this moves, we expect that between now and the end of the year, the ABL tech revenue could ultimately end up being quite material over the next, you know, 12 to 18 months. And so we're very excited about the progression there and the overall market feedback in that division.

Thank you. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Jackson for any final comments.

Great. Thank you to everyone. We could not be, again, more thrilled and excited about the opportunity and the direction of Abacus and the future of Abacus, highlighted by a strong first quarter and what we expect to be a sustainable and consistent model. We look forward to speaking to you on our next call. And for those that might have any additional questions, please feel free to reach out. Have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.