Abacus Life, Inc.

Good day, ladies and gentlemen, and thank you for standing by. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question over the phone by pressing the star and one on your telephone keypad. Please note this event is being recorded. I'd now like to turn the call over to Robert Phillips, Abacus Life's Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, Operator. And thank you, everyone, for joining Abacus Life's third quarter 2024 earnings call. Here with me today are Jay Jackson, Chairman and Chief Executive Officer, and Bill McCauley, Chief Financial Officer. This afternoon at 4.15 p.m. Eastern Time, Abacus Life released its third quarter 2024 results. This afternoon's call will allow participants to ask questions about our results. Before we begin, Abacus Life refers participants on this call to the investor webpage 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. For more information on the risks, uncertainties, and assumptions relating to forward-looking statements, please refer to Advocates Life's public filings. During the call, we will reference certain non-GAAP financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under U.S. generally accepted accounting principles or GAAP. Please see our public filings for additional information regarding our non-GAAP financial measures, including references to comparable GAAP measures. And with that, I'd now like to turn the call over to Jay Jackson, Chairman and Chief Executive Officer.

Thanks, Rob. And thank you to everyone joining us today for your interest in Abacus, and welcome to our third quarter 2024 earnings call. After Bill and I conclude our prepared remarks, we'll open it up to your questions. Before I discuss our results for the quarter, I want to recognize the immense challenges faced by our communities here in Florida due to the recent hurricanes. Our thoughts and prayers are with everyone affected. We're thankful for all of the first responders who have been working tirelessly to assist and restore our communities. I also want to especially thank our team in Florida who worked tirelessly for advocates and for our communities, even when they were personally impacted by the storms. I'm incredibly proud of our entire team. Turning to our results. We delivered another strong quarter of profitable growth while making significant progress with respect to our strategic initiatives. Further positioning Abacus Life as a leading market maker and alternative asset manager. For the third quarter of 2024, we grew total revenue by 33% year over year to $28.1 million. recorded strong adjusted earnings, growing adjusted EBITDA by 54% year-over-year to $16.7 million, and generating a 65% year-over-year increase in adjusted net income to $14.9 million, or $0.20 per diluted share. Bill will be along shortly to discuss our third quarter financial performance in further detail. In addition to our experience, exceptional quarterly financial results, we made substantial advances in our ABL Tech program, announced key acquisitions, and strengthened our executive bench and added a new partnership and product offering. First, I'm thrilled by the significant progress we've made in advancing our ABL Tech initiative since we officially announced the program just eight months ago. ABL Tech went live with external clients in April, and signed our first public pension client in June. In August this year, we also signed one of the largest union pension funds in the United States. Our track record in winning RFPs has been outstanding, and we are consistently outperforming the key incumbent vendors in the space. Out of the five RFPs we have bid thus far, we won four of them and are awaiting notification on the remaining one. Assuming we win the final RFP, we expect to exceed 1 million lives tracked by the first quarter of 2025. ABL Tech's value proposition was fully validated in one of our RFPs, which received the highest overall score across all categories, including data security, product performance, price, and company evaluation, showing off ABL Tech's clear market-leading differentiations. As of October 31st, ABL Tech serves 21 clients with 23 others either having provided firm commitments or in current negotiations, all of this across 23 states. We expect many, if not all, of those in our pipeline to be officially onboarded by the end of the first quarter of 2025, with contracts ranging from three to five years containing automatic renewals at the end of the initial term. Looking ahead, We also have more than 50 potential clients in our pipeline in various stages of discovery, pricing, and proposals heading into 2025. By leveraging decades of experience in proprietary health and longevity data sets, ABL Tech creates bespoke solutions that deliver tremendous value to the pension fund and financial services industries. We expect ABL Tech to become a significant driver of our top line growth over the long term. In addition, During the third quarter, we announced two key acquisitions, Carlyle Management Company SCA and FCF Advisors. Carlyle Management, a premier Luxembourg-based investment manager in the life settlement space, and FCF Advisors, an asset manager and index provider specializing in free cash flow-focused investment strategies, together will add approximately $2.6 billion in assets under management to our portfolio. We expect both deals to close by the end of the fourth quarter, subject to regulatory approval. We also significantly strengthened our senior management team with two key additions. First, we are thrilled to bring on board Corey McLaren as Managing Director of Capital Markets. Corey brings a wealth of financial services experience, including over 15 years specifically in life settlements and managing life settlement investment funds at Spearhead Capital and launching similar funds at FDO Partners. Corey's deep industry knowledge and proven track record in business development and fund management will expand our capabilities in advancing our strategic goals. In early October, we welcomed Rob Phillips as our new Senior Vice President of Investor Relations and Corporate Affairs. Rob brings over 30 years of invaluable experience in capital markets and investor relations, including leadership roles at NASDAQ, where he served as a primary liaison to public company executives and board members. as well as significant experience in institutional trading, brokerage, and regulatory affairs at the NYSE. Rob's expertise will be instrumental in strengthening our engagement with the investment and capital markets communities, advancing our strategic business initiatives, and supporting our growth objectives. We also made excellent progress with new product initiatives. In the quarter, Abacus partnered with Laresco to launch Predisans, a revolutionary health prediction and actuarial technology tool. The innovative risk score combines blood-based proteomic biomarker analysis with AI-driven models to assess mortality risks, offering personalization and longevity forecasting. By integrating Lorisco's cutting-edge health prediction platform with advocates' expertise in life settlements and actuarial technology, we will be able to provide highly tailored financial solutions for our clients. While this program is still in beta testing, this partnership makes a significant advancement in the field of longevity-based financial planning, enabling us to offer more accurate and personalized services that consider both traditional actuarial factors and modern proteomic markers. On the capital front, Our balance sheet liquidity position remains strong. We successfully deployed the $92 million in equity capital we raised at the end of the second quarter, while maintaining a strong return on equity of 23% and return on invested capital of 21%. We are reviewing our capital options, and as rates continue to become more attractive, we are considering additional debt financing and potentially other avenues for additional financing to take advantage of our strong market to purchase policy at very attractive returns and support our growth outlook. Looking ahead, we are committed to sustaining our momentum and seizing the vast opportunities before us to drive long-term profitable growth. Through constant, thoughtful investments in product innovation and prudent execution, we continue to firmly solidify Abacus as a pioneering global alternative asset manager and market maker. With that, I'll now hand it over to our CFO, Bill McCauley, to discuss the specifics of our third quarter results in financials.

Thanks, Jay, and hello, everyone. As Jay mentioned, we delivered another solid 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 continue to our future earnings. In the third quarter 2024, capital deployed was 93.2 million compared to 56.4 million in the prior year period, while we grew policies purchased by 53% to 278 compared to 181 in the prior year period. With our continued policy origination and capital deployment, as of September 30th, 2024, Abacus holds 532 policies with a value of $274.4 million on the balance sheet. Total revenue in the third quarter of 2024 grew by 33% to $28.1 million compared to $21.1 million in the prior year period. The increase was primarily due to higher active management revenue. Turning to expenses, total operating expenses, excluding unrealized and realized gains and losses and the change in fair value of debt, for the third quarter 2024 were approximately $19.4 million compared to $13.2 million in the prior year period. The increase from the prior year period was due to higher investments in SG&A. Notably, we increased our total employee headcount by 10% in the third quarter to support our growth initiatives through policy acquisition and active management and through increased marketing to support our growth profile. the company typically realizes the benefit of marketing spend within 90 to 120 days. Adjusted EBITDA for the quarter grew 54% to $16.7 million compared to $10.8 million in the prior year period. Adjusted EBITDA margin grew to 59.2% for the quarter compared to 51.1% in the prior year period. Gap net loss attributable to stockholders for the quarter was $5.1 million compared to net income of $0.9 million in the prior year period, which is primarily driven by a non-cash $8.7 million increase in warrant liability in the third quarter of 2024 compared to a non-cash $0.9 million increase 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 third quarter of 2024 grew by 65% to $14.9 million, compared to $9 million in the prior year period. Turning to our balance sheet metrics, on an annualized basis, for the three-month period ended September 30, 2024, adjusted return on equity was 23%, and adjusted return on invested capital was 21%, both reflecting our highly profitable business model. As of September 30, 2024, the company had cash and cash equivalents of $19.4 million, balance sheet policy assets of $274.4 million, and outstanding long-term debt of $166.5 million. In summary, we are pleased with our robust performance this quarter, and we 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.

Thanks, Bill. In conclusion, as we close out 2024, we remain very excited about the vast market opportunity in front of us, and we are well positioned to capture and grow our market share in the space. Our journey towards becoming a global alternative asset manager is well on track, and our extensive longevity data is creating new opportunities across various sectors, enhancing our growth prospects. We're committed to building on our two-decade track record of financial success to deliver long-term profitable growth. Again, thank you all for joining us today, and we appreciate your interest in Abacus Life. With that, we look forward to your questions.

At this time, if you'd like to ask a question, please press the star and 1 on your telephone keypad. Keep in mind you may remove yourself from the question queue at any time by pressing star and 2. Again, it's star and 1 to ask a question today. We'll take our first question from Crispin Love with Piper Sandler. Please go ahead. Your line is open.

Thank you, and good evening, everyone. Just first off, Jay, can you just talk a little bit about trends in the fourth quarter so far and then seasonality more broadly? I believe in the past you've talked about originated base value and capital deployed being higher in the fourth quarter as people plan for the year ahead and meet with advisors, et cetera. So first, is this true, and is this something that you've been seeing so far this year? Thank you.

Great. Hi, Crispin. Thank you. And yes, we've seen that trend continue. For us, Abacus has been in our industry for now over 20 years. And historically, the fourth quarter, from an origination point of view, is, I think, at the policy level, the policyholders themselves are looking to potentially conclude this transaction prior to the year end. And so historically, we've had stronger numbers in relationship to origination in Q4. With that said, we also had a very strong Q3. And I think that, you know, that could also be another indication of just things to come. But, you know, when you look at our origination up year over year, as much as we were, you know, I think that we're very, very bullish and certainly remain optimistic that we'll continue to see that origination trend continue in that direction. So it's, you know, Q4, it looks like it's shaping up the same way that we've historically seen it.

Great. Thanks, Jay. That's helpful. And then, Bill, can you just share what the originated base value in the third quarter was? I saw the capital deploy, but just looking for that originated base value number.

In the third quarter, it was $471.6 million. Thank you. You're welcome.

And as a reminder, if you'd like to ask a question today, please press the star and one keys. We'll take our next question from Andrew Klagerman from TD Cohen. Please go ahead. Your line is open.

Hey, good evening. Nice to hear your voices. Maybe my first question is around the active management revenue. I mean, obviously very, very strong at $27 billion this quarter. How do you see that playing out over the next four quarters? Do you see that rising pretty material? Any color around that? Because you did deploy a lot of capital.

Yeah, Andrew, thank you for that question. And great to hear from you as well. And I think there continues to be a significant demand in our industry to acquire these assets. And that was certainly true in Q3. And we expect that trend to continue for the foreseeable future. And part of that's driven by, there's a couple of key things that are happening right now. And there are some things from an investment point of view that are certainly giving us some wind at our backs. And part of that is, driven by, you know, we had a quarter point decrease in rates, our lowering of rates announced today. And when you have lower cost of capital, that increases additional investment into an asset like ours, which traditionally has above market uncorrelated types of returns. And so for us, when we think about active management, what that means is, is that we should continue to see that trend coming into 2025. So, you know, we're excited for our prospects right now. We think we're incredibly well positioned and it's a really smart and intelligent time to be putting more capital to work. And so we had a successful Q3 in deploying that capital. And we're certainly looking at all options, as we just stated, as to what Q4 and Q1 look like in relationship to capital and active management. But things look very positive right now.

And then maybe talk about the much, much smaller revenue line items portfolio servicing and origination revenue. Those numbers were off a bit versus the year ago quarter. Could you give a little color around each and how you're feeling in both of those areas?

Sure. The servicing revenue for us might ebb and flow depending on how active we are with our own portfolio and even others. So as you have cash kind of enter in and out of anyone's portfolio where they're selling policies, that means that your servicing revenue may be impacted up or down beyond that. You know, one of our clients on the servicing side has been effectively winding down some of their portfolio, and we've been selling those into the market very successfully, and that's had some impact to the servicing. But, you know, from our perspective, one of the things that we're very excited about on the servicing revenue line item is that as we continue our process with Carlisle Asset Management, we think that, you know, we'll see some significant servicing revenue continue to grow there as we continue to integrate that process.

Got it.

And that closes at the end of the year, right? Well, yeah, you know, I never say for sure one date or another, but, you know, we're anticipating to, we're still anticipating to see that as a Q4 close.

And then the origination revenue?

Yeah, so the origination revenue is typically if we don't have initial capital or we don't want to hold that policy on our balance sheet, we might take that policy and then sell it directly to that investor. And there's a number of reasons why that might be. It might be size constraint. It doesn't mean that there's anything from a basis of the policy that we do or don't like. It just might be a more efficient transaction to then charge an origination fee, and then sell that directly to that third-party investor. And so, you know, it makes sense that that origination fee would have come down as we're buying and holding more policies on our balance sheet. And then, of course, selling them from our balance sheet versus, you know, trading them or rather than originating them for a origination fee directly to the third-party investor. So, you know, this is the trend you would expect as we deploy more capital off of our own balance sheet.

Makes sense. Thank you. Sure.

And we'll take our next question from Mike Grondahl with Northland Securities. Please go ahead. Your line is open.

Hey, thank you, guys. Any update on the competitive environment? And, Jay, maybe what are your top two priorities for 2025?

Sure. We'll start with some of our primary focus for 2025. Number one is to continue to expand our education and awareness program through our marketing of our underlying asset and people having a greater understanding of what our industry represents. But in addition to that, what you saw was, you know, from the acquisition point of view, you know, groups that might be a little bit different than just outside of our industry, things that what we would call like adjacent industries that we're taking a good close look at. So, you know, we want to continue to expand our current business and revenue model while horizontally looking at those other sources of revenue, which would include things like whether that's through servicing, valuation, You know, we're obviously excited about some of the things that we're starting to see in the ABL tech division in providing mortality verification services to pension funds and others.

Could you talk a little bit about what you've learned so far with the bank partner and how the new on-demand product is going?

What was that, Mike? I apologize. I think I missed part of that question.

Oh, the second part was just on the competitive environment.

Got it. And related to a competitive environment, I think that, you know, in our industry and others, as you have success, it hopefully rises the tides of all in the industry. And, you know, as we're continuing to measure that, I think that, you know, the competitive landscape for our industry is that it's still a pretty tight industry. And that gives us a lot of run room from where we stand. We're... the only publicly traded company in our industry still today. And I think that gives us a significant advantage, not only in relationship to capital, but also in how we're conveying our message directly to policyholders and other institutions. We're having a lot of success in sharing our story with other large origination and distribution sources that we've talked about. So, you know, from where we sit, we feel really good about how well we're positioned for 2025 and going forward. And, you know, we think that we'll still continue to have a competitive advantage because of that.

Great. Hey, thank you. Absolutely.

And there are no further questions on the line at this time. I'll return the program to Jay Jackson for any closing remarks.

Terrific. Thank you, everyone, for taking taking time out of your evening to dial and listen to our call. Hopefully a couple of your key takeaways is that one of the things that we're certainly very proud of is that we are continuing our growth. We are incredibly well positioned for coming in, not just in the short term, but also for the long term. And we expect those trends to continue. As we deployed our capital, when we started to look at things like our EBITDA margin at almost 60% now, you know, in a quarter like Q3, something that we're very proud of and, you know, look forward to this continued growth. So as everyone comes into the holidays, we wish you the very best holidays, and we look forward to speaking to you again in the new year.

This does conclude the Abacus Life earnings call. Thank you for your participation, and you may now disconnect.