Abacus Life, Inc.

This conference is being recorded. I will now turn the conference over to Garrett Edson of 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 FCC 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 and the Company's Earnings Press Release for the Second Quarter of 2024, which is incorporated herein by reference. We know 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, 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 joining us today for your interest in Abacus. And welcome to our second quarter 2024 earnings call. With me today is our Chief Financial Officer, Bill McCauley. And after our prepared remarks, we'll open it up to your questions. It was another quarter of excellent performance for Abacus Life as we continue to successfully execute on our key strategic initiatives. and further solidifying our position as a leading market maker and global alternative asset manager, which will have nearly $3 billion in assets under management post-acquisitions. For the second quarter of 2024, we more than doubled total revenue year-over-year to $29.1 million and recorded strong earnings, growing adjusted EBITDA by 83% year-over-year to $16.7 million. and generating a 75% year-over-year increase in adjusted net income to $11.8 million, or $0.18 per diluted share. Our second quarter performance underscores our thoughtful investments in marketing, which continue to yield excellent results by driving significant year-over-year increases in our direct-to-consumer originations. Meanwhile, the strength of our partnerships with carriers and reinsurers remains a key contributor to our strong performance in both revenue and adjusted EBITDA. Bill will be along shortly to discuss our second quarter financial performance in further detail. In addition to our exceptional quarterly financial results, we also made substantial progress with respect to our long-term strategy. As we outlined during our investor day in June, along with our core business of acquiring life insurance policies, we are focused on expanding our complimentary lifespan-based financial products. Since our last earnings call, we achieved several key strategic milestones. In a pivotal moment for our ABL Wealth Division, subsequent to the quarter end, we announced a definitive agreement to acquire Carlyle Management Company, a premier Luxembourg-based investment manager in the life settlement space. for approximately $200 million. This acquisition will add approximately $2 billion in assets under management and is fully aligned with our strategy to become a global alternative asset manager. In addition to being a great culture fit, Carlyle further enhances Abacus's offering to institutional investors seeking attractive risk-adjusted returns with low correlation to other asset classes. Carlisle has a most impressive and longstanding track record as a fund manager in the life settlement industry and its geographically diverse client base stands to significantly complement our efforts to become a global financial leader. By incorporating Carlisle's expertise and robust portfolio into our offerings, we are strategically positioning ABOL at the heart of our mission to deliver sophisticated investment solutions for the life settlement market. This acquisition highlights our dedication to providing exceptional value and expanding our capabilities to serve a wider range of investor. Along with Carlisle, last week, we entered into an agreement to acquire FCF Advisors, a New York-based asset manager and index provider specializing in free cash flow-focused investment strategies. FCF Advisors has a suite of core and thematic free cash flow equity strategies and offers over 50 customizable free cash flow index strategies covering eight global equities allocations. The deal will add approximately $600 million in assets under management and further accelerates the expansion of ABL Wealth with a diverse lifespan-based suite of products. In late June, we successfully closed an oversubscribed public offering of 11.5 million shares of common stock, including full exercise of the underwriters option, which further broadened our investor base and enhanced our liquidity position. Through this offering, we raised over $90 million in proceeds, which we have rapidly deployed into additional life settlement policies, as well as advancing our overall business strategy. Finally, During the quarter, we established a national distribution relationship with AIMCOR, one of the largest national insurance marketing organizations in the United States. This partnership will leverage AIMCOR's extension network of over 40 broker general agencies to offer protection and retirement solutions to thousands of financial professionals, institutional clients, and other distribution partners nationwide. As a preferred partner for life settlement solutions, Abacus will provide its expertise to AIMCOR's affiliated member firms. This collaboration highlights our commitments to client-centric solutions and enhancing our ability to educate policyholders about the value of their policies and empowering them to make informed financial decisions. All of our achievements over the past few months clearly underscore our relentless commitment to constant innovation through our wealth of longevity data and actuarial technology, offering an incredible value proposition for our clients. and firmly solidifying Abacus as a pioneering global alternative asset manager and market maker. Looking ahead, we're incredibly excited to build upon our success and capitalize on the vast growth opportunities before us. By continuing to leverage our successful business model, exceptional team of experts, and extensive proprietary data and technology, we are strategically positioned for sustainable and profitable growth. ensuring long-term value creation for our shareholders. With that, I'll now hand it over to our CFO, Bill McCauley, to discuss the specifics of our second quarter results in financials.

Thanks, Jay. And hello, everyone. As Jay mentioned, we delivered another strong quarter of top-line growth and profitability at Abacus. The key driver of our business performance continues to be our highly efficient origination platform while we continue to build our other verticals that will contribute to our future earnings. In the second quarter of 2024, origination capital deployed was 104.7 million compared to 59.8 million in the prior year period, while we grew policies purchased 95% to 275 compared to 141 in the prior year period. Total revenue in the second quarter of 2024 more than doubled to 29.1 million compared to 11.4 million in the prior year period. the increase was primarily due to higher active management revenue. As of June 30, 2024, Abacus held 458 policies, of which 452 are accounted for under the fair value method, and six 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 has elected to account for these under the fair value method going forward. For policies purchased before June 30, 2023, the company elected to use the fair value method or the investment method. Turning to expenses, total operating expenses excluding unrealized and realized gains and losses in the change in fair value of debt for the second quarter of 2024 were approximately 18.9 million compared to 1.3 million in the prior year period. We would note that second quarter 2024 total operating expenses included 6.2 million of non-cash stock compensation expense and .8 million of public company related expenses, both of which did not occur in the prior year period. Beginning in the third quarter, we will anniversary these non-cash equity compensation and public company expenses. We also increased sales and marketing expenses by approximately 1.9 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. Adjusted EBITDA for the quarter grew 83% to 16.7 million compared to 9.1 million in the prior year period. adjusted even a margin was 57.5% for the quarter compared to 80.4% in the prior year period. Gap net income attributable to stockholders for the quarter was 0.8 million compared to 6.8 million in the prior year period. On an adjusted basis, excluding non-cash stock compensation, business acquisition costs, amortization and change in fair value of warrant liability, Net income for the second quarter of 2024 grew 75% to $11.8 million, compared to $6.8 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 June 30, 2024, were both 18%, reflecting our highly profitable business model. As of June 30, 2024, the company had cash and cash equivalents of $91.3 million, balance sheet policy assets of $208.7 million, and outstanding long-term debt of $151.3 million. In summary, we are pleased with our strong results, delivering 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 remain well positioned to continue utilizing our deep expertise within the life planning space to further capitalize on a massive market opportunity. We are making steady progress on the path to becoming a global alternative asset manager, while our incredible wealth of longevity data is opening up many new doors into several new verticals, which should further charge our growth capabilities. And we will continue to do this while ensuring that we sustain and grow our profitability, just as we've done over the last 20 years. I'd like to thank you all for joining us today, and we appreciate your interest in Abacus Life. We will now field any questions.

Thank you. If you would 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 would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Crispin Love with Piper Sandler. Please proceed.

Thanks. Good morning, Jay. Good morning, Bill. Hope you're well. First, can you just talk a little bit about deployment and capacity? You raised 90 million plus in June, clearly put some of that to work pretty quickly based on the results. So can you discuss when you expect to deploy that full amount and then capacity for deployment and opportunities going forward as you look to the back half of the year and into 2025? Sure. Thanks, Chris.

When we thought about this, when we were even managing the follow-on investment, you know, when we talked about the deployment of that capital was to make things both sustainable and profitable over time. And we're in a very, I think, exciting period for our industry in a sense that, you know, the broadening of the message has really certainly increased significantly. policy flow for us. And thus, you know, the deployment of capital, we absolutely were able to, we had some pent-up inventory and were able to put some of that capital to work right away even before Q2, even though we closed on the follow-on June 20. So even in that short amount of time, we were able to get that capital deployed.

I think we, you know, we had spoken, you know, prior to

specifically, we expect to have a majority of that capital deployed before year end, probably sooner than that. It could be as early as Q3, which is exciting, right? That's what we wanted to do, get that capital deployed, get that ROE to work for all of our shareholders and investors. And the opportunity only continues to grow through this year and really through next year as well. We think it's also, when you think about rates and you think about the markets themselves, this is really a market that's designed for us, whether that's volatile or different types of volatility or whether it's different types of interest rates. We think that this is a great market for us.

Thanks, Jay. All super helpful. And then Just another one on adjusted EBITDA. You've generated about $28 million in the first half of the year. Can you just talk a little bit about expectations for the full year as I kind of look at my model? Just simplistically, doubling that gets you to $56 million, but you did add the capital, also took advantage of some opportunities late in the second quarter, which might not recur. So just curious on how we should look at the cadence of EBITDA for the second half of the year.

Yeah, I think the cadence of the EBITDA

So when we look at Q3, Q4, the way that we're looking at this is that, yes, we had a phenomenal Q2. We want to manage expectations in Q3, Q4. I think the numbers that you have put forth and other analysts, we think that we're tying out to those and everything looks very positive. Obviously, you can't predict everything that's going to happen in the future. But based upon the capital raise and based upon, like I said, the sustainability and profitability of the current business, you know, we feel very good about the numbers throughout the end of the year.

Great. And then just one very quick one for housekeeping, my model. Can you share what originated face value was in the quarter?

Yeah, total originated face value in the quarter. I know Bill has that number, that exact number, which he'll get to you. One of the things that we did do, Crispin, that I just want to highlight is that When we think about origination, it can come in one of two areas. It can come direct from the policyholder, but there can also be opportunities where we see other asset managers that are winding down their funds and they want to potentially opportunistically sell their remaining other assets so that they can return their capital back to their shareholders. And so we have been able to take advantage of that as well.

And so when we look at discount rates on a go-forward

Excuse me, Mr. Jackson, we are having a little trouble with your line. It keeps cutting out a little bit.

I don't know if that, Bill, if you would mind jumping on and just giving him the actual number and then we can kind of tie out the rest of that.

Yeah, sure. So total originated face value for the quarter was $447 million. And what Jay was mentioning is that before he cut out is that we had opportunities to buy policies outside of just our origination platform. And that's what also contributed to the high volume in the quarter.

Great. Thank you both. Appreciate you taking my questions.

As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, our next question is from Andrew Klingerman with TD Securities. Please proceed.

Hey, good morning. Good to kick the week off with abacus earnings. My first question is around active management and the revenue that came in. I mean, more than doubled a big number at 27 million, a little more than we had anticipated. Could you help frame, you know, just sort of, is this sort of a base number now? How do you see that trending over the next year or two?

Yeah, hey, I don't know if my sound was repaired or not. Is that any better?

That sounds good, Jay.

Great. Sure, Andrew, and thank you for the question. I think that, you know, when we look at Q2, this is about being able to put some of the capital to work that we were able to expand from our follow-on investments. The way that I look at this is that, you know, this is sustainable and profitable. And we are, and one key indicator there is when you look at the return on equity, we didn't see a fall off on ROE. However, we also, still have a significant higher cash balance sheet that we're putting money to work here in Q3 as well. So, you know, this is the type of business that when we look at discount rates and the opportunities that we have to buy, let's say, policies, it's incredibly creative for us right now. And so without trying to pull out the crystal ball and go too far out in advance, I think the way that I would look at it is, is that From a modeling perspective and the way that we see this through the end of the year, I would expect us to maintain a lot of the things, a lot of the modeling numbers that you had laid out.

Got it. Okay. And then with respect to M&A, yeah, two really nice acquisitions, and Carlisle being more of a pure play life settlement situation. And then FCF, which is a little more diverse. So as we kind of look forward, Jay, what are you thinking about M&As and will they be more along the lines of FCF or are there more Carlisle type deals out there?

I think that Carlyle was a special opportunity for us. We had known them for so long, 15 plus year track record. I don't think there's a lot of companies like Carlyle out there. I think from our focus is let's look at that business that has 2 billion in assets under management, primarily from offshore investors and continue to grow and expand that brand. And FCF is the same in the sense that FCF has got a great track record. We want to expand the idea of providing ETF models specifically related to someone's lifespan. So from our perspective, the way that we look at M&A is let's make sure that we're integrating successfully the companies that we've been able to acquire and drive profitability there. Because I think that we've got best in class in both of those businesses right now.

And if we're Jay, you have cut out again.

Bill, could you maybe take up while I fix Jay's line?

Yeah, absolutely. So I think, you know, Andrea, we'll continue to be opportunistic with regards to M&A. As Jay mentioned, Carlyle was a pure life settlement play in our industry, made sense from an asset management side. FCF is a great fit for... for ABL Wealth model and as we look to build out ABL Wealth providing financial advice based on longevity. We think that's a great fit and we'll continue to be strategic on the M&A side going forward.

Got it. And one last one on the abacus tech front. I know you've outlined in the past that potential clients would be governments, insurance companies, pensions. It seems like Tensions would be the big area, and maybe you could touch on progress to date, if you've had any wins, and kind of where you see that going.

Okay, we are still having trouble with Jay's line. I'm trying to get anything connected in.

I can take that one. So ABL Tech continues to grow. I mean, we're adding on new clients here now that we've deployed the service. And so, you know, we continue to see that as a growth opportunity for fee recurring earnings. So that is going as planned to date.

Great. Thanks a lot. Thanks, Andrew.

Okay, Jay is back in with us, and we will move on to the next question, which is Matt Howlett with the Riley Securities. Please proceed.

Oh, hi, Bill. Hi, Jay. Good morning. Hey, terrific results. I mean, I want to talk about the margins here. I mean, it just beat us and impressed again. What are you seeing out there on the acquisition front? Was there anything particular this quarter? Did you buy bigger policies? Was there a certain channel? that was better than the others. Just give me what you're seeing out there in terms of margins and pricing.

Hey, Matt. Hopefully, y'all can hear me better now. Yes, the EBITDA margin went up, and we are seeing really interesting opportunities, and I kind of highlighted the two areas. where we're being able to acquire directly from policyholders as well as institutionally. And I think on an institutional basis where we're able to acquire some very strategic opportunities related to other portfolios, we definitely saw some of that in Q2. Historically, we haven't seen as much opportunity there as we're seeing today as some funds are starting to wind down some of their strategies and they can't sell into the next one. On a go-forward basis, we think that that's going to continue to be a strategy that we want to expand in addition to our regular origination, which is directly to the policyholder. And I would also just add, too, when you add more origination, which is what we've done, we have focused specifically on educating consumers, educating financial advisers, broadening our origination from large financial firms. When you do that, you're able to get a broader set of policies to purchase at much better rates.

And in terms of just the general market, I mean, with your direct program, I realize you can go to these institutions and get low-hanging fruit when it's available, but the market size, the share size, you have obviously, is it still as big as you thought it was going to be?

It is. And I would argue it's even bigger, right? Like we have pent up demand and there's specific segments of the market that we're absolutely thrilled about opportunistically, where I think that, you know, as more and more people are starting to really, you know, utilize this asset as something for their estate plan, I think that that's creating a significant amount of opportunity. So, you know, for us, Matt, we see this continuing. I mean, you know, this is the type of I think, opportunity that from a profit margin and a discount rate perspective, we haven't seen in years. And we should be putting more and more capital to work where the opportunities lie.

It's incredible. And you're putting, obviously, more marketing dollars to work. And we'll see the impact of that. Like you said, it's sort of some lead time before you see more of that coming through that channel. Well, look, that's terrific. I mean, it's amazing how quickly you put that capital to work from the race. On the insurance buyback, I didn't see if there was any contribution this quarter. Did I see it right, or is that just one B every quarter, quarter to quarter?

Yeah, when you look at the buyback perspective, sometimes it's lumpy in a sense that it just depends on when transactions close, right? They're not always at the last few days of the month or the week. Sometimes you're building up inventory to better structure those. And I like to point out is that even with or without that buyback in place, we still have just really strong quarter. And I think that, you know, that's the consistency that you're looking for is that, yes, absolutely. You know, working with the life insurance companies and potentially reinsurers is a great opportunity, but we still have a phenomenal underlying business that generates great returns. And as that business continues to grow, that will just grow on top of this.

Yeah, that's where I was going. The margin would have been stronger if that was involved in this quarter. Okay. So, and then the last thing is, You've raised the equity. You did the Carlisle deal, which was more equity than debt. When you look at it, you've delevered a bit. You've got your 28-note trading above par, and you've got possibly interest rates coming down. Jay, what's the capacity to add more debt capital when it's available? Are you looking at things like structured finance? Just walk me through the balance sheet here. It just seems like it's really improved since the deal.

It has, and the balance sheet is really strong, and we're taking advantage, I think, of every opportunity that would present itself, specifically around capital. Assuming that here we've got this great inventory of contracts with this level of ROE that we should be purchasing, and even if you apply this to the M&A, the M&A deals didn't really require much capital. Almost all of that was either through bond or through equity rollover. So, you know, we're deploying this capital into those assets, which now, how do we best utilize that? Is it through potential, you know, adding some more debt to the balance sheet? Certainly taking a close look at that, particularly as we're watching closely what rates do. And if rates come down substantially, that'll be at the forefront of our mind. And, you know, what does equity look like going forward too, right? Although we had a very successful follow-on equity raise in June, what we're hearing from shareholders and investors is that there's significantly more appetite for additional equity to purchase. And so we're also taking that into consideration as well.

No, listen, with the acquisitions you did, I mean, you guys – I mean, it seems like – Mark is willing to give you capital just given how the growth in the business. Really, congratulations and look forward to the next quarter. Awesome.

Thank you.

We have reached the end of our question and answer session. I would like to turn the call back over to Jay for closing remarks.

Great. Thank you again, everyone. And we are absolutely thrilled to highlight another strong and consistent and profitable quarter for Abacus. We are just as excited about our future and the opportunities that we have as our business and our company, and we look forward to continuing that journey with each and every one of you. I hope everyone has a great day today. If you have any follow-up or further questions that you would like to have answered, please feel free to reach out to Bill and myself, and we're happy to schedule some additional time with you. Have a great day, everybody.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.