Abacus Life Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to Abacus Life 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Garrett Edson of ICR.

Operator

Thank you. You may begin.

Speaker 1

Good day, ladies and gentlemen. Thank you for standing by. Abacus Life refers 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 and then expect the business. Abaxis Life specifically refers participants to the presentation furnished today on Form 8 ks 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, can materially affect results.

Speaker 1

Reference is made to the section titled Forward Looking Statements in the company's earnings press release for the Q4 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 ks, 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 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.

Speaker 1

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.

Speaker 2

Thank you to everyone listening today for your interest in Abacus, and welcome to our 2023 Q4 earnings call. With me today is our Chief Financial Officer, Bill McAuley. 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.

Speaker 2

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 Q4 of 2023, we grew total revenues 25% year over year to $23,600,000 and delivered strong earnings with adjusted EBITDA of $11,000,000 and adjusted net income of $5,900,000 For the full year 2023, we generated total revenues of $79,600,000 or 14% growth from the prior year, while growing adjusted EBITDA 13% year over year to $39,300,000 and delivered adjusted net income of 29,400,000 dollars In 2023, we increased our new policy originations by 30% to 633 in 2023 and paid over $200,000,000 to policyholders. Much of this growth was driven by our carrier partnerships and expanding reinsurer relationships. Also, during the Q4, our Board of Directors authorized a $15,000,000 stock repurchase program. As of March 19, 2024, 8,100,000 of stock had been repurchased at a weighted average price of $11.20 per share.

Speaker 2

There is currently $6,900,000 of availability remaining under this program. Additionally, warrant holders have started to their warrants at the strike price of $11.50 and we have received $3,500,000 in proceeds to date. Bill will be along shortly to discuss more of the Q4 and 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.

Speaker 2

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 1 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 have 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.

Speaker 2

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.

Speaker 2

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 TAC in 2024. Along with our new initiatives, our core origination and asset management vertical, also known as ABL Longevity Funds, continues to along well as we just completed our 20th consecutive year of GAAP profitability while continuing to generate strong margins.

Speaker 2

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 $233,000,000,000 plus opportunity with a significant financial incentive to the individual 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.

Speaker 2

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 towards 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 long term profitability. With that, I will now hand it over to our CFO, Bill McCauley to discuss the specifics on our Q4 results and financials.

Speaker 3

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 Q4 2023, origination capital deployed increased by approximately 92 percent to 68 $5,500,000 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 period. Total revenue in the Q4 2023 grew by approximately 25 percent to $23,600,000 compared to $18,800,000 in the prior year period.

Speaker 3

The increase was primarily due to strong performance across all segments. For the full year 2023, revenue increased 14% to $79,600,000 compared to $69,700,000 in the prior year. The increase was primarily attributable to higher policy acquisitions and realized trade revenue. As of December 31, 2023, Abacus held 296 policies, of which 287 are accounted for under the fair value method and 9 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.

Speaker 3

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 Q4 of 2023 was $200,000 compared to $100,000 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 Q4 of 2023 were approximately $18,900,000 compared to $4,400,000 in the prior year period. We would note that the Q4 2023 total operating expenses included $6,200,000 of non cash stock compensation expense and $2,500,000 of public company related expenses, both of which did not occur in the prior year period.

Speaker 3

We also increased sales and marketing expenses by approximately $2,000,000 compared to the prior year period, which assisted in accelerating our growth profile in 2023. The company typically realizes the benefit of marketing spend within 90 to 120 days. Consistent with the Q4 of 2023, total operating expenses in the first half of twenty twenty four 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 twenty twenty three. We will begin to anniversary non cash equity compensation and public company expenses in the Q3 of 2024. Adjusted EBITDA for the quarter was $11,000,000 relatively comparable to $11,100,000 in the prior year period.

Speaker 3

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 $39,300,000 compared to $34,800,000 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 $6,200,000 compared to GAAP net income attributable to stockholders of $10,000,000 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 Q4 of 2023 was $5,900,000 compared to $9,500,000 in the prior year period.

Speaker 3

For the full year 2023, adjusted net income was $29,400,000 compared to $32,300,000 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 3 month period ended December 31, 2023 were 18% 17%, respectively, reflecting our highly profitable business model. As of December 31, 2023, the company had cash and cash equivalents of 25 point $6,000,000 balance sheet policy assets of $124,000,000 and outstanding long term debt at fair value of $89,100,000 During the Q4, 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 2 75 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.

Speaker 3

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.

Speaker 2

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 $200,000,000,000 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 all of you for joining us today and we appreciate your interest in Abacus Life.

Speaker 2

We will now field any questions.

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Andrew Kligerman with TD Cowen. Please proceed with your question.

Speaker 4

Hey, good afternoon, Jay and Phil. Question around revenue and origination capital, it looked like the revenue was up 14 on larger face and 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 2024? How are you thinking about 2024 in revenue and origination capital respectively?

Speaker 2

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.

Speaker 2

And we have seen an increase in the size of the policy 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 1 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.

Speaker 2

So 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 we we're talking about $2,800,000 of additional EBITDA that would have been there effectively at 25%.

Speaker 2

So that would have matched the top line, right? You would have had a 4th quarter of 25% top line and 25% revenue, but we took that revenue and invested it back into the business to really tee up 2024.

Speaker 4

Got it. So it sounds like the trend continues into 2024?

Speaker 2

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.

Speaker 4

And maybe on that total operating expenses, if I take out the non cash comp, I think it was like about $14,000,000 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?

Speaker 2

Well, I always like to under promise and over deliver. So 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.

Speaker 4

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 3 or 4 years from now?

Speaker 2

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 financial planning, utilizing Lifespan, I think is very exciting and would also help drive future investment products that we build and design for that.

Speaker 2

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 you think about things like the pension fund industry, when you think about the size, scale and scope of that market, the states, 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.

Speaker 2

So what I don't want to do is say, oh, 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 3 5 years out, this would be a significant piece to our revenue 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 will be incremental. It will be slower in the 1st year and then you'll see 2, 3, 4, 5 in years this piece of the business really takes off.

Speaker 4

Got it. Makes a lot of sense. Thanks a lot.

Speaker 2

Thank you, Andrew.

Operator

Our next question comes from the line of Wilma Burtis with Raymond James. Please proceed with your question.

Speaker 5

Hey, good afternoon, everyone. Could you provide any updates on the mutual fund launch and just maybe talk about the revenue opportunity there?

Speaker 2

Sure. Thank you, Wilma. We had filed and have filed an N2 prospectus. I think our last filing is available online public and that was our 4th turn of SEC comments. We have whittled those down I think pretty significantly and we're very excited about that opportunity.

Speaker 2

We're waiting on feedback now on what those next line of comments will be. But we are hopeful that we've been able to accommodate the SEC responses along the way here and our hope is to have that targeting for us at that towards the end of April. I know that's moved a few months here from when we initially hoped closer to February, but with all things considered, this is the first product of its kind with the SEC. And they've expressed that and they're spending additional due diligence time just to make sure that we had the proper disclosures. But overall, we think that that's going to be a product at least in our business that has a significant impact particularly within our ABL wealth.

Speaker 2

That will be an interval fund that has its own ticker and effectively available to the public and will be distributed out through RIAs and other distribution platforms through RIAs and broker dealers, etcetera. So we have a significant amount of interest already in that product where funds and others have said, gosh, we've seen the filing, we would be very interested. Now we can't have those conversations with them until we have a clean prospectus, which again we're hopeful to have that sometime in the next 30 days. But we believe that the overall interest and the contribution to our revenue will also be significant and that will be significant in 2024 and obviously thereafter. And so it will impact a number of areas of our business and we're right now just waiting patiently to receive some additional feedback from the SEC, but we expect that to be very, very soon.

Speaker 5

Okay. Thank you. And then maybe if you could talk a little bit about the deployment pipeline, where your capital position stands, the capital you expect to generate and what you can deploy? Sure.

Speaker 2

I think Bill highlighted, we had a record capital deployment in the Q4, right, I think it was $68,000,000 and year over year that was up almost 100%. And we had a record year on capital deployment in 2023, dollars 218,000,000 So what we're able to see is with the investment we're making back into Abacus and our business in relationship to marketing and distribution, that capital deployment we expect to continue that trend. And with that, from our perspective, it takes us to the premise of additional capital ultimately on the balance sheet and whether that's through an interval fund, mutual fund product or that's through other means whether it's a bond, which we did in January, which by the way we were very proud of, it was oversubscribed because the interest is significant, or other type of finance instruments specifically around potentially do we consider issuing more primary shares through a secondary offering? All of those things are at the forefront of our mind and we're working closely with that because right now when you think about capital deployment, not the opportunities that we have and the revenue that we're earning on those. It's super important.

Speaker 2

We want to continue to do that, but it's the ones that we're not. And when you think about that, there's opportunities, there's contracts that we're not purchasing. And if we had additional capital on our balance sheet, we would be able to take advantage of those opportunities and it would be accretive day 1. It's the type of thing that you would see a positive impact to our balance sheet by having more capital to it. So we have a number of ideas and options and process right now so that we can continue to address that and increase the capital on our balance sheet.

Speaker 5

Okay. Thank you. And then, I guess just one last one, if you could talk a little bit about the pipeline for additional carrier relationships without naming any names, but just talk about the activity there.

Speaker 2

Sure. And that's continuing to grow. I think that there is a significant carrier that we work with now. There are more that we're in deep conversations with and we will continue to see that interest as we attend conferences and speak to them directly, what we're finding is that there is a real need for this and they'll continue to be one. The challenges from the carriers opinion of our industry historically.

Speaker 2

And we're set ourselves out to change that. And by being a public company, we're the only public publicly traded company in our industry, I think gives us a significant advantage in those conversations because as we're working through governance committees at carriers, that's one of the key things they look for, transparency, regulatory. Are we able to manage and manage this transaction in as transparent as possible way and also being subject to the same type of regulatory that many of these carriers are at a public level, not just at a state regulatory level. So those conversations are going very, very well. We are advancing those conversations very quickly.

Speaker 2

I think in the last 6 months, it's moved exponentially. And we think over the next year, it will move even quicker as there's been more opportunities. And by the way, what's important about those carriers is that this is a mutually beneficial transaction, all the way back to the policyholder in the sense that as we know policyholders typically have very high lapse rates and this allows them to treat their policy like equity and then potentially that policy gets lapsed and they can use that capital for other means. From the carrier's perspective, this is a really positive impact on their legacy liabilities, their balance sheet. And so when you start to measure all of these positives, the carriers are starting to look at this and say this needs to be one of the many things that they do in managing their legacy liabilities, but it went from this is something we'll think about to now it's a top 2 or 3 item.

Speaker 5

Great. Thank you very much.

Speaker 2

Thank you,

Operator

Wilma. Our next question comes from the line of David Destin with Kingdom Capital Advisors. Please proceed with your question.

Speaker 6

Hey, Jay. Hey, Bill. Thanks for taking the question. Quick one for you guys on policy originations. I think you guys have said previously that the vast majority of what you guys are doing right now is kind of the trading policies, where you buy them and flip them within a pretty short timeframe.

Speaker 6

Should we continue to expect kind of that cadence in 2024? Or do you think there'll be any move towards holding more on your balance sheet longer term?

Speaker 2

Hey, David, thank you. Great to hear your voice and very good question. We are always remaining flexible, the best opportunity to maximize return in any contract. And as it looks today, we tend to trade more contracts in our active management portfolio than hold on our balance sheet over time. I think that as there's the balance sheet gets larger and larger, I think it's natural to think and progress that we'll hold some of these contracts for a longer period of time in our balance sheet.

Speaker 2

And we started to see a little bit of that in the 4th quarter. And you can track that through realized and unrealized gains on those contracts. But there will always be an active management element to what we do because there is such high demand for these contracts. And being able to realize that revenue and that profit today versus letting those contracts mature out over several years. We think it's a very smart business model.

Speaker 2

But I'll also add to that is that as we're increasing our institutional relationships, whether that be with insurance carriers, whether that be with other private institutional asset managers, the demand is quite high for the asset. And I think it's important that we always consider and maximize our capital and our capital flows in the most intelligent way. So I think as we get into 2024 and we start to put more capital on our balance sheet that might alter some of the positioning on how much we hold versus how much we decide to trade and realize at that time. But just keep in mind, we're holding terrific assets on our balance sheet that are historically great returns with essentially uncorrelated underlying asset that trades and feels much more like a mortality driven 0. So, to answer your question specifically, I think that we will remain flexible at this time and be opportunistic in what is the best way to manage and drive revenue for the company's balance sheet.

Speaker 6

Got it. Thanks. That's certainly a nice way to manage the cash flow problem that has beset some of your predecessors. Agreed. 2nd question, it sounds like on the ABL Wealth and ABL Tech side, there's been a pretty significant amount of costs in getting all those set up.

Speaker 6

Do you have a rough idea, like if we're looking at the Q4, kind of how much of the cost is going towards these new revenue lines that we're going to start seeing in

Speaker 2

next couple of quarters? Sure. What's interesting about that is that the costs were not as significant as you might suspect in launching those lines because keep in mind, let's start with ABL tech. We had been doing this for years, right. So the infrastructure was essentially already in place.

Speaker 2

We just added to it. So the overall costs weren't startup related because it already existed. It was just a matter of adding additional labor and some technology behind that. So I think that when we look at our relative costs, the cost increase related to the Q4, were less about the build out of ABL Wealth and ABL Tech and driven more by origination costs related to acquiring more contracts in the Q4. Specifically, one of the largest cost increase we had in the Q4 was marketing and advertising.

Speaker 2

And that was not related to ABL Wealth or ABL Tech. So from our perspective, we're rolling out these additional lines based upon the foundation that we already had. And then your incremental costs are more labor driven versus infrastructure.

Speaker 6

Got it. Well, that's certainly good for incremental margins as we look into 'twenty four.

Speaker 2

Right, right.

Speaker 6

Got it. Thanks guys. Appreciate you taking the time.

Speaker 2

Always. Thanks David.

Operator

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

Speaker 7

Hey, Jay and Bill. Thanks for taking my question.

Speaker 2

Sure. Hey, Matt.

Speaker 7

Hey, just to follow on the

Speaker 4

investment, the sales and marketing,

Speaker 7

can we get the update on the direct to consumer channel? I mean, that's your highest margin channel. Jay, I love seeing the ads, the commercials. Todd, give me the update. It sounds like that could really contribute to the bottom line here as you invest in and build out that channel.

Speaker 2

Sure. The quick update there was that yes, that channel was a significant contributor, not just in the Q4, but all of 2023. We launched that advertising campaign in January of 2023 and it's been it's exceeded our expectations, which is what led to the significant investment in the Q4 of 2023 later in the year. We saw nearly a 2x in number of originations from the direct to consumer channel. So from our perspective, as we look now into 2024, as Bill highlighted on the call earlier, Jim, typically there's a 90 day to 120 day kind of delay from when you spend your marketing advertising dollars to when you see the impact of that marketing.

Speaker 2

And so what we think about and how we look at this is that 2024 is really well lined up based upon that marketing spend that we did in the Q4 of 2023. So even though we took a little bit higher expense against our EBITDA, we think it was worth it as we look into 2024.

Speaker 7

And remind me again, the policyholder is getting just as good of a deal going directly through you as you would be going to a broker. You're just essentially cutting out the middleman. Is that sort of how to look at that

Speaker 2

It is. For us, you don't need an auction to know the value of a life insurance contract. You need a calculator. It's a simple solve for net present value. And with the consolidation in our industry, there's most of the capital is deployed through just a few companies.

Speaker 2

And because of that, it's far more efficient than what it was. And that means that there's a lot greater opportunity for the policyholder just to have a much better understanding of what their policy is actually worth without having to pay significant intermediary costs to do so. And because of that, we're able to acquire more policies in a much more efficient way, while at the same time, the policyholder themselves can benefit by potentially having a larger capital piece to them. So for us, it makes a lot of sense. And frankly, we're able to get to a much larger audience because of it.

Speaker 7

Absolutely. And on that, no, I mean, I see policy acquisitions up 30%, but people get very excited when look at the potential growth of Abacus. But just walk us through what this TAM is, what this market opportunity is? I mean,

Speaker 2

you're

Speaker 7

obviously leaving a lot on the table here as your cost of capital goes down and you scale, you could and the growth just seems like it's just it could be huge going forward.

Speaker 2

Yes. That's exactly right. And that is exactly how we look at the business, right? I mean, you look at the addressable market, there's still north of $200,000,000 a year that lapses over the age of 65. And our industry barely scratches that, right?

Speaker 2

And so now we're starting to look at this and say, dollars 2 30,000,000,000 not $1,000,000 And we barely scratched the surface on that. As we now have what I think is really interesting, you have maybe life insurance carriers that are considering buybacks that adds and actually validates. They're not a competitor to me. To me, they validate what we're doing. And that provides additional education to these policyholders where they're like, gosh, I should treat my policy like equity, not like debt.

Speaker 2

Why would you ever let this thing go, let this policy last, stop making premium payments, if it has a true equity value. And I think when you think about that education, if you think about our advertising, it's all about education. We have a calculator. Nobody puts out a calculator. We put out a calculator so that people get educated.

Speaker 2

They understand that their policy has value and it's a real value. And because of that, now you start to look at how we start to capture or chase down that $230,000,000,000 plus that will lapse over the age of 65. It's driven by education, transparency and legitimacy and validation. And when they see that, hey, we're a public company, this is a real transaction, it provides a lot of comfort to those policyholders when they're considering selling this transaction.

Speaker 7

Absolutely. It makes total sense in such a unique model. Last question, Jay and Bill. I mean, look, I got to commend you on the buyback. I mean, you're one of the few companies who have gone public through respect who's been doing this.

Speaker 7

And now you're saying some of the warrants now are starting to get exercised. So there's money coming in the door to you accretively. Just walk us through on the remaining warrants outstanding. Just talk about that's going to be just in again, we haven't seen a lot of companies that have gone public, but as fact being in such a unique envious position as you are.

Speaker 2

Thank you. And honestly, I don't I'm not aware of many public companies be it whether it was a SPAC or just going public in the 1st year that also did a buyback. And we looked at it because we looked at our stock as a position and felt that it was an undervalued asset and why wouldn't we buy back at those prices based upon the earnings and the fundamentals that we had at the time. And that response and narrative has been really well received publicly. And as a result of that, as the stock price exceeded $11.50 which was the warrant exercise price, warrant holders are looking at our opportunity to own the common stock for the long term and they're converting those or exercising their warrants into common stock, which is effectively putting cash on our balance sheet.

Speaker 2

So when you think about the $8,100,000 that we've spent in the buyback, we received $3,500,000 back in exercise warrants. Really, this reduced our cost of the buyback significantly. And I think that it was a absolute kind of win for us that we didn't plan for initially. We were just looking at our company and felt that our stock was undervalued. And then when you looked at the warrants starting to exercise, it's effectively converting people into long term shareholders and believers in our stock.

Speaker 2

So we couldn't be more proud or happy about how that process has worked in addition to that creating a really positive narrative. Now how many more those warrant holders will continue to see the opportunity to exercise and become common stockholders. So any warrant holders out there, we are as aggressively as we can, sharing with them this story and thankfully we're seeing them turn into long term stock holders because of it. So super excited about it.

Speaker 7

Yes. You're not far from what? Is it 18 where you can call them and force conversion? Is that sort of the number?

Speaker 2

That's right. So per the warrant agreement, what happens is that if the common stock reaches 18 for 20 or 30 days, then we can call that we can call all the warrants to exercise of $11.50 which would effectively create somewhere around $190,000,000 to $200,000,000 of cash to our balance sheet if that were to occur. We'll see, right? I think that's a little further down the road if that were to happen, great. We would love to have those warrant holders convert to stockholders.

Speaker 2

But if it doesn't, that's okay too. But as the stock continues to rise based upon the performance of the company, it is a viable possibility that that could happen. And I would love to have all those warrant holders convert over to common stockholders. Plus, if you think about what that $200,000,000 would the impact that would have to our balance sheet would be substantial.

Speaker 7

Yes. I mean, the acquisitions, you just have sort of so much more capital to grow with low cost capital. So really,

Speaker 2

I

Speaker 7

got to commend you on the capital management, really.

Speaker 2

Thank you. Thank you. Thanks so much. When you think about that capital and the EBITDA that it runs at, that would have a dramatic impact, I think, or significant impact to forward 12 month EBITDA, right? So but we'll see.

Speaker 2

We'll obviously keep a really close eye on it, but it's definitely one of the strategies along with debt and along with equity that we would take a good hard look at in 2024.

Speaker 7

Yes. Puts you in a virtuous circle for sure. I really appreciate it guys.

Operator

Thanks, Matt. There are no further questions in the queue. I'd like to hand it back to Jay Jackson for closing remarks.

Speaker 2

Great. Thank you again to everyone for joining our Q4 2023 conference call and earnings call. We couldn't be more excited about the prospects of 2024 and we also want to express our gratitude to each and every one of our shareholders for our research analysts and everyone who attended this call today. We look forward to working with you more in the future. And as always, as more questions arise after this call, you'd like to schedule some time with Bill and I, feel free to reach out.

Speaker 2

Have a great afternoon. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Abacus Life Q4 2023
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