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

Good day ladies and gentlemen. Thank you for standing by. Abacus Life first participants on this call to the investor webpage www.abacuslife.com/investors for the press release, the investor information and filings with the SEC for a discussion of the risks, then affect the business. Abacus Life specifically refers participants to the presentation furnished today and Form 8-K with Securities Exchange Commission and to remind listeners that some of the comments today may contain forward-looking statements and as such will be subject to risks, and uncertainties, which if they materialize, can materially affect results. Reference is made to the section titled forward-looking statements in the company's earnings press release for the fourth quarter of 2023, which is incorporated herein by reference. We note, forward-looking statements, whether written or oral include, but are not limited to Abacus Life's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties and assumptions, including the risk factors set forth in item 1A of our most recent 10-K, which if they materialize, could materially affect results and such forward-looking statements do not guarantee performance in Abacus Life gives no such assurances. Abacus Life is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to Abacus Life are not necessarily indicative of results to be achieved in succeeding periods. I'll now turn the call over to Jay Jackson, Chief Executive Officer of Abacus Life.

Thank you to everyone listening today for your interest in Abacus, and welcome to our 2023 fourth quarter earnings call. With me today is our Chief Financial Officer, Bill McCauley, and after our remarks, we'll open it up to your questions. We finished off 2023 with another strong quarter of positive results and profitable growth, capping off a record year for Abacus exceeding our previous record year in 2022. As we look to 2024, our differentiated business model has positioned us well to further capitalize on our momentum and with the recent launches of ABL Wealth and ABL Tech, which I'll discuss in a moment. We are progressing toward leveraging our technology advantages, expanding our total addressable market, and becoming a full-fledged alternative asset manager. For the fourth quarter of 2023, we grew total revenues 25% year over year to $23.6 million and delivered strong earnings with adjusted EBITDA of $11 million in adjusted net income of $5.9 million. For the full year 2023, we generated total revenues of $79.6 million or 14% growth from the prior year, while growing adjusted EBITDA 13% year over year to $39.3 million and delivered adjusted net income of $29.4 million. In 2023, we increased our new policy originations by 30% to 633 in 2023 and paid over $200 million to policy holders. Much of this growth was driven by our carrier partnerships and expanding reinsurer relationships. Also, during the fourth quarter, our Board of Directors authorized a $15 million stock repurchase program. As of March 19th, 2024, $8.1 million of stock had been repurchased at a weighted average price of $11.20 per share. There is currently $6.9 million of availability remaining under this program. Additionally, warrant holders have started to exercise their warrants at the strike price of $11.50, and we have received…

Thanks, Jay, and hello everyone. As Jay mentioned, we delivered another strong quarter of top line growth and profitability across our business. The key driver of our business performance continues to be our highly efficient origination platform. In the fourth quarter of 2023, origination capital deployed increased by approximately 92% to $68.3 million compared to $35.5 million in the prior year period, driven by larger face value policy acquisitions while maintaining 79% growth in policy originations to 208 compared to 116 in the prior year. Total revenue in the fourth quarter 2023 grew by approximately 25% to $23.6 million compared to $18.8 million in the prior year period. The increase was primarily due to strong performance across all segments. For the full year 2023, revenue increased 14% to $79.6 million compared to $69.7 in the prior year. The increase was primarily attributable to higher policy acquisitions and realized trade revenue. As of December 31st, 2023, Abacus held 296 policies of which 287 are accounted for under the fair value method and nine are accounted for using the investment method, which is cost plus premiums paid. As a reminder, for all policies purchased after June 30th, 2023, the company has elected to account for these under the fair value method going forward. For policies purchased before June 30th, 2023, the company elected to use either the fair value method or the investment method. Revenue from our portfolio servicing segment in the fourth quarter of 2023 was $0.2 million compared to $0.1 million in the prior year period. Turning to expenses, total operating expenses, excluding unrealized gains and losses on investments and change in fair value of debt for the fourth quarter of 2023 were approximately $18.9 million compared to $4.4 million in the prior year period. We would note that the…

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

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

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

Thank you, Andrew. Great to hear your voice as well, and yes, the answer is yes. We are excited about the prospects of 2024. This is a trend that actually started back even a few years ago, and we have seen an increase in the size of the policies that we're acquiring. And you've seen almost year over year now, a larger deployment of capital. But you've also seen a significant increase in the number of policies that we're acquiring. And I think this goes back to one, driven by our ability to market. We've been in the market a long time. We've got really well-established relationships with financial professionals across the country. We have seen a very positive impact as well on our advertising to increase our direct-to-consumer channel and division. Where our new policy number of originations, I think is indicative as well, where we were up over 30% over the prior year period. It's really twofold, right? So, we're purchasing more contracts that also we have larger face value, which is driving up the amount of capital deployed. And then as you look at it, as a kind of a key driver, that capital deployed figure that would then contribute to your year-over-year growth in top line and bottom line on your adjusted EBITDA. And in fact, I would even highlight, if you look at the prior year period, or year over year in Q4, not just 2023, but if you look at Q4, saw the adjusted EBITDA number, albeit it looked like it was flat year to year, but taking into consideration that we increased our marketing by $2 million in the fourth quarter. We had public company expenses, another 800,000 in addition to the prior year period, we're talking about $2.8 million of additional EBITDA, that would've been there effectively at 25%. So that would've matched the top line, right? You would've had a fourth quarter, 25% top line and 25% revenue. But we took that revenue and invested it back into the business to really tee up 2024.

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

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.

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

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

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

Sure. I think one way to think about ABL Tech and what we're doing there is that it's more than just one line of business. We do valuation and servicing work there. We do a lot of lifespan and longevity work that feeds into other lines of our business. So, when you consider that, you'll see an uplift in the other areas like ABL Wealth and using that technology and that lifespan technology to do the financial planning utilizing lifespan, I think is very exciting and would also help drive future investment products that we build and design for that. But the other piece that I think is really tangible is we've been doing mortality verification for our own accounts and our own funds that we've managed for over a decade. And being able to roll that out to other customers we think is really, really exciting. We're already signing up customers, significant institutions and insurance companies that utilize that for mortality verification. And when you think about things like the pension fund industry and you think about the size, scale, and scope of that market, the state we're having conversations with states about how to better manage some of those pension liabilities where they might be overpaying or potentially even dealing with potential fraud? So that market, what's fascinating is that it's massive. So, what I don't want to do is say, hey, next year we're expecting X. But we do anticipate that line of our business overall to be a significant piece to our total revenue on a go-forward basis growing three and five years out, this would be a significant piece to our revenue and can, and contributor to our revenue. And the margins on that business are excellent. I think in the next year as we continue to build that, it'll be incremental, it'll be slower in the first year, and then you'll see two, three, four, five in years. This piece of the business really takes off.

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

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

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 fourth turn of SEC comments. We have whittled those down, I think, pretty significantly, and we're very excited about that opportunity. 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 have the proper disclosures. But overall, we think that's going to be a product, at least in our business that has a significant impact, particularly within our ABL Wealth. That'll 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, et cetera. So, we have a significant amount of interest already in that product where funds and are 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'll 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.

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

As I think Bill highlighted, we had a record capital deployment in the fourth quarter. I think it was $68 million. And year over year, that was up almost a hundred percent. And we had a record year on capital deployment in 2023 with $218 million. So, what we're able to see is with the investment we're making back into Abacus and our business and 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 equity 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, it's not the opportunities that we have and the revenue that we're earning on those, it's super important. We want to continue to do that, but it's the ones that we're not. And when you think about 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 a creative day one. 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.

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 there.

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, 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 carrier's perspective is that they've kind of looked at our industry over time. Maybe they haven't had the best experience or the highest level of opinion of our industry historically. And we're set ourselves out to change that, and by being a 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 an is a 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. I think in the last six 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 policy holder. And in the sense that as we know, policy holders 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 two or three items.

Great. Thank you, very much.

Thank you, Wilma.

Our next question comes on the line of David Bastian with Kingdom Capital Advisors. Please proceed with your question.

Hi, Jay. Hi, Bill. Thanks for taking my question. Quick one for you guys on policy originations. I think you guys had 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. 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?

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 then 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 will hold some of these contracts for a longer period of time in our balance sheet. And we started to see a little bit of that in the fourth 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 is a very smart business model. But I'll also add to that is that, as we're increasing our institutional relationships, whether that be with insurance carriers or 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's trades and feels much more like a mortality-driven zero. 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.

Got it. Thanks. Certainly, a nice way to manage the cash flow problem that has set some of your predecessors. Second 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. Do you have a rough idea, like if we're looking at the fourth quarter, kind of how much of the cost is going towards these new revenue lines that we're going to start seeing in the next couple of quarters?

What's interesting about that is that the cost 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. 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 fourth quarter, we're less about the build out of ABL Wealth and ABL Tech and driven more by origination costs related to acquiring more contracts in the fourth quarter specifically. One of the largest cost increases we had in the fourth quarter was marketing and advertising, 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.

Got it. Well, that's certainly good for incremental margins as we look into ‘24.

Right.

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

Jay and Bill, thanks for taking my question. Just to follow on the investment to sales and marketing and, 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. And that sounds like that could really contribute to the bottom line here as you invested and build out that channel.

The quick update there was that, yes, that channel was a significant contributor, not just in the fourth quarter, but all of 2023. We launched that advertising campaign in January of 2023, and it's been, they succeeded our expectations, which is what led to the significant investment in the fourth quarter 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, -- 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. 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 fourth quarter 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.

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

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, most of the capital is deployed through just a few companies. 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 policy holder just to have a much better understanding of what their policy is actually worth with 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 policy holder 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.

And on that, no, I mean, I see policy acquisitions up 30%. People get very excited when you look at the potential growth of Abacus. I mean, just walk us through what this TAM is, what this market opportunity is? I mean, you're obviously leaving a lot on the table here. As your cost of capital goes down and you scale, I mean, growth just seems like it's just could be huge going forward.

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 million a year that lapses over the age of 65. And our industry barely scratches that, right? And so now we're starting to look at this and say, alright -- excuse me, $230 billion, not million. 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 policy holders where they're like, gosh, I should treat my policy like equity, not like debt. 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, 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 plus billion 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 policy holders when they're considering selling this transaction.

It's 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 that have gone public through respect who's been doing this, 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 got to be just in -- again, we haven't seen a lot of companies going public via SPAC being such a unique envious position as you are.

Honestly, I'm not aware of many public companies via whether it was a SPAC, right? But just going public in the first 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 it 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 1,150, 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. So, when you think about the $8.1 million that we've spent in the buyback, we've received $3.5 million back in exercise warrants. Really, this reduced our cost of the buybacks significantly. And I think that it was 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. 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 outstanding warrants are there? There's about a little north of 17 million outstanding warrants. And we think that, as we continue to deliver results like 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 that with them this story. And thankfully, we're seeing them turn into long-term stockholders because of it. So, super excited about it.

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

That's right. So, per the warrant agreement, what happens is that if the common stock reaches 18 for 20 days or 30 days, then we can call all the warrants to exercise of 1150, which would effectively create somewhere around $190 million to $200 million of cash to our balance sheet if that were to occur, we'll see. 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. 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 million would add, the impact that would have to our balance sheet, it would be substantial.

Acquisitions, you just have sort so much more capital to grow and low-cost capital. So really -- I got to commend you on capital management, really.

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

Put you in a virtuous circle for sure. I really appreciate it, guys.

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

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 would like to schedule some time with Bill and I feel free to reach out. Have a great afternoon. Thank you.

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