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| 8-K - 8-K - EMERGENT CAPITAL, INC. | a8kq42015-123115.htm |
Emergent Capital, Inc. Announces Fourth Quarter and Year-End 2015 Results and Subsequent Developments
Company Reports Book Value of $8.01 per Share
New Senior Secured Notes Subsequently Issued Totaling $21.2 Million
Boca Raton, Fla., March 14, 2016 – Emergent Capital, Inc. (NYSE: EMG) ("Emergent" or the "Company"), today announced its financial results for the three months and year ended December 31, 2015.
Three Months Ended December 31, 2015
Total income from continuing operations was $3.1 million for the three months ended December 31, 2015 compared to income from continuing operations of $24.8 million for the same period in 2014. This decrease was a result of a change in the fair value of life settlements primarily driven by discount rate adjustments as well as a decrease in policy acquisitions during the period.
The following table provides a summary of the components of income from the Company's life settlements.
Three Months Ended December 31, 2015 | Three Months Ended December 31, 2014 | |||||||
Change in estimated probabilistic cash flows | $ | 16,087,268 | $ | 18,570,328 | ||||
Premiums paid during period | (16,679,958) | (14,880,865) | ||||||
Change in life expectancy evaluation | (1,329,075) | 307,129 | ||||||
Change in discount rates | (2,769,807) | 11,596,643 | ||||||
Unrealized gain on acquisitions | 95,885 | 3,418,490 | ||||||
Realized gain on maturities | 7,730,983 | 5,803,303 | ||||||
Change in fair value of life settlements | $ | 3,135,296 | $ | 24,815,028 | ||||
Total expenses from continuing operations were $18.5 million for the three months ended December 31, 2015 compared to $13.5 million for the same period in 2014. The increase was primarily related to legal fees of $10.4 million including a one-time payment of $6.5 million relating to the Company's indemnification obligations for the conclusion of the United States Attorney's Office (USAO) Investigation.
The Company reported a net loss from continuing operations of $13.7 million, or $(0.49) per diluted share for the three months ended December 31, 2015, compared to net earnings of $8.7 million, or $0.32 per diluted share, for the same period in 2014. The net loss for the three months ended December 31, 2015 includes an income tax benefit of approximately $1.7 million compared to an income tax expense of $2.6 million for the same period in 2014.
Year Ended December 31, 2015
Total income from continuing operations was $46.9 million for the year ended December 31, 2015 compared to $43.8 million for the same period in 2014. The increase was primarily due to a $2.6 million increase in the change in fair value of life settlements.
The following table provides a summary of the components of income from the Company's life settlements.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Change in estimated probabilistic cash flows | $ | 76,707,356 | $ | 72,275,001 | ||||
Premiums paid during period | (64,923,395) | (55,459,396) | ||||||
Change in life expectancy evaluation | (20,029,291) | (10,655,781) | ||||||
Change in discount rates | 1,070,696 | 15,700,091 | ||||||
Unrealized gain on acquisitions | 5,951,916 | 5,855,283 | ||||||
Realized gain on maturities | 47,939,749 | 16,412,596 | ||||||
Change in fair value of life settlements | $ | 46,717,031 | $ | 44,127,794 | ||||
Total expenses were $86.0 million for the year ended December 31, 2015 compared to $48.8 million for the same period in 2014. The increase was primarily due to a $17.7 million increase in the change in fair value (liability) of the Company’s revolving credit facilities due to reduction in the discount rate after amending the White Eagle Revolving Credit Facility, along with projected earlier repayments due to maturities. These were partially offset by increased borrowings, the lengthening of life expectancies of certain insureds underlying policies pledged as collateral in the facility and increases in the projected cost of insurance, an increase in the extinguishment of the senior secured notes totaling $8.8 million, higher interest expense of $11.1 million, as well as higher legal fees of $7.1 million mainly attributable to a one-time payment of $6.5 million required by Company's indemnification obligations for the conclusion of the USAO Investigation on December 31, 2015.
The Company reported a net loss from continuing operations of $30.4 million, or $(1.22) per diluted share, for the year ended December 31, 2015, compared to a net loss of $5.2 million, or $(0.24) per diluted share, for the same period in 2014. The net loss for the year ended December 31, 2015 includes an income tax benefit of approximately $8.7 million compared to income tax expense of $125,000 for the same period in 2014.
As of December 31, 2015, the Company had cash and cash equivalents of approximately $20.3 million. The Company had 28,130,508 shares outstanding, treasury shares of 608,000 and an undiluted book value of $8.01 per share at December 31, 2015.
Life Settlements Portfolio Highlights
At December 31, 2015, the estimated fair value of the Company’s 632 life insurance policies was $461.9 million compared to $388.9 million for 607 life insurance policies at December 31, 2014. The weighted average discount rate was 17.02% at December 31, 2015 compared to 17.77% at December 31, 2014. The aggregate face value of the Company's portfolio of life insurance policies was approximately $3.0 billion at December 31, 2015. During the fourth quarter, the Company experienced three policy maturities totaling $13.9 million. To date in 2016, the Company has experienced five additional policy maturities totaling $11.0 million. All of the aforementioned maturities occurred within the Company’s revolving credit facilities.
Antony Mitchell, Chief Executive Officer of Emergent, commented: “During the quarter, we had what we believe are two seminal events. First, after amending our White Eagle Revolving Credit Facility, we expect to receive significant cash flows from the White Eagle and Red Falcon portfolios over the next three years. Second, the Justice Department's investigation of certain former employees related to of our legacy premium finance business ended with a civil resolution and with no admissions of wrong doing. As a result, we expect our future legal fees to be significantly lower. These two events should dramatically improve our cash management capabilities going forward.” Mr. Mitchell continued, “Lastly, today, we announced that we raised over $21.2 million in a private debt offering and expect to raise up to $30.0 million in total."
Conference Call
The Company will be hosting a conference call today at 5:00 P.M. ET to join the call, please dial toll free (855) 656-0929, or from outside the U.S. (412) 317-6021. The conference call will also be broadcast live through a link on the Investor Relations section of the Company’s website at www.emergentcapital.com. Please visit the website at least 10 minutes prior to the call to register, download and install any necessary audio software.
About Emergent Capital, Inc.
Emergent Capital (NYSE: EMG) is a specialty finance company that invests in life settlements. More information about Emergent can be found at www.emergentcapital.com.
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating to the business of Emergent Capital, Inc. and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, and involve known and unknown risks and uncertainties. Although Emergent believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Other than as required under the securities laws, Emergent does not assume a duty to update these forward-looking statements.
Company Contact:
David Sasso
Emergent Capital, Inc.
Senior Vice President, Corporate Development & Investor Relations
561.995.4300
IR@emergentcapital.com
www.emergentcapital.com
# # #
-SELECTED FINANCIAL TABLES FOLLOW-
Emergent Capital, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2015 | 2014 | |||||||
(in thousands, except share and per share data) | ||||||||
Income | ||||||||
Interest income | $ | 22 | $ | 29 | ||||
Loss on life settlements, net | (41 | ) | (426 | ) | ||||
Change in fair value of life settlements | 46,717 | 44,128 | ||||||
Other income | 193 | 85 | ||||||
Total income | 46,891 | 43,816 | ||||||
Expenses | ||||||||
Interest expense | 27,286 | 16,245 | ||||||
Extinguishment of Secured Notes | 8,782 | — | ||||||
Change in fair value of Revolving Credit Facilities | 12,197 | (5,472 | ) | |||||
Change in fair value of conversion derivative liability | — | 6,759 | ||||||
Personnel costs | 6,384 | 8,763 | ||||||
Legal fees | 20,739 | 13,620 | ||||||
Professional fees | 7,133 | 5,254 | ||||||
Insurance | 1,275 | 1,667 | ||||||
Other selling, general and administrative expenses | 2,194 | 2,006 | ||||||
Total expenses | 85,990 | 48,842 | ||||||
Loss from continuing operations before income taxes | (39,099 | ) | (5,026 | ) | ||||
(Benefit) provision for income taxes | (8,719 | ) | 125 | |||||
Net loss from continuing operations | $ | (30,380 | ) | $ | (5,151 | ) | ||
Discontinued Operations: | ||||||||
Loss from discontinued operations | (644 | ) | (601 | ) | ||||
Benefit for income taxes | — | 232 | ||||||
Net loss from discontinued operations | (644 | ) | (369 | ) | ||||
Net loss | $ | (31,024 | ) | $ | (5,520 | ) | ||
Loss per share: | ||||||||
Basic loss per share: | ||||||||
Basic loss per share from continuing operations | $ | (1.22 | ) | $ | (0.24 | ) | ||
Basic loss per share from discontinued operations | $ | (0.03 | ) | $ | (0.02 | ) | ||
Basic loss per share available to common shareholders | $ | (1.25 | ) | $ | (0.26 | ) | ||
Diluted loss per share: | ||||||||
Diluted loss per share from continuing operations | $ | (1.22 | ) | $ | (0.24 | ) | ||
Diluted loss per share from discontinued operations | $ | (0.03 | ) | $ | (0.02 | ) | ||
Diluted loss per share available to common shareholders | $ | (1.25 | ) | $ | (0.26 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic and diluted | 24,851,178 | 21,354,567 | ||||||
Emergent Capital, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31,
2015 | 2014 | |||||||
(in thousands, except share and per share data) | ||||||||
Income | ||||||||
Interest income | $ | 6 | $ | 7 | ||||
Loss on life settlements, net | (41 | ) | — | |||||
Change in fair value of life settlements | 3,136 | 24,815 | ||||||
Other income | 8 | 13 | ||||||
Total income | 3,109 | 24,835 | ||||||
Expenses | ||||||||
Interest expense | 5,795 | 5,080 | ||||||
Change in fair value of Revolving Credit Facilities | (1,292 | ) | (915 | ) | ||||
Personnel costs | 960 | 2,136 | ||||||
Legal fees | 10,394 | 4,498 | ||||||
Professional fees | 1,849 | 1,692 | ||||||
Insurance | 309 | 414 | ||||||
Other selling, general and administrative expenses | 523 | 641 | ||||||
Total expenses | 18,538 | 13,546 | ||||||
(Loss) income from continuing operations before income taxes | (15,429 | ) | 11,289 | |||||
(Benefit) provision for income taxes | (1,737 | ) | 2,577 | |||||
Net (loss) income from continuing operations | $ | (13,692 | ) | $ | 8,712 | |||
Discontinued Operations: | ||||||||
(Loss) income from discontinued operations | (5 | ) | 85 | |||||
Benefit for income taxes | (223 | ) | — | |||||
Net (loss) income from discontinued operations | (228 | ) | 85 | |||||
Net (loss) income | $ | (13,920 | ) | $ | 8,797 | |||
(Loss) earnings per share: | ||||||||
Basic (loss) earnings per share: | ||||||||
Basic (loss) income per share from continuing operations | $ | (0.49 | ) | $ | 0.41 | |||
Basic loss per share from discontinued operations | $ | (0.01 | ) | $ | — | |||
Basic (loss) income per share available to common shareholders | $ | (0.50 | ) | $ | 0.41 | |||
Diluted (loss) earnings per share: | ||||||||
Net (loss) income from continuing operations | (13,692 | ) | 8,712 | |||||
Add: Interest expense associated with convertible debt, net of tax | — | 1,448 | ||||||
Adjusted net (loss) income from continuing operations | (13,692 | ) | 10,160 | |||||
Net (loss) income from discontinued operations | (228 | ) | 85 | |||||
Diluted (loss) income per share from continuing operations | $ | (0.49 | ) | $ | 0.32 | |||
Diluted loss per share from discontinued operations | $ | (0.01 | ) | $ | — | |||
Diluted (loss) income per share available to common shareholders | $ | (0.50 | ) | $ | 0.32 | |||
Weighted average shares outstanding: | ||||||||
Basic | 27,890,227 | 21,361,930 | ||||||
Add: Restricted Stock | — | 26,725 | ||||||
Add: Convertible debt using the "if converted" method | — | 10,464,941 | ||||||
Diluted | 27,890,227 | 31,853,596 | ||||||
Emergent Capital, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
2015 | 2014 | ||||||
(In thousands except share data) | |||||||
ASSETS | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 12,946 | $ | 51,166 | |||
Cash and cash equivalents (VIE) | 7,395 | 3,751 | |||||
Certificate of deposit | 2,501 | — | |||||
Prepaid expenses and other assets | 1,017 | 1,502 | |||||
Deposits - other | 1,347 | 1,340 | |||||
Deposits on purchases of life settlements | — | 1,630 | |||||
Structured settlement receivables, at estimated fair value | — | 384 | |||||
Structured settlement receivables at cost, net | — | 597 | |||||
Life settlements, at estimated fair value | 11,946 | 82,575 | |||||
Life settlements, at estimated fair value (VIE) | 449,979 | 306,311 | |||||
Receivable for maturity of life settlements (VIE) | 18,223 | 4,000 | |||||
Fixed assets, net | 322 | 355 | |||||
Investment in affiliates | 2,384 | 2,384 | |||||
Deferred debt costs, net | 1,797 | 3,936 | |||||
Total assets | $ | 509,857 | $ | 459,931 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities | |||||||
Accounts payable and accrued expenses | $ | 3,051 | $ | 6,140 | |||
Accounts payable and accrued expenses (VIE) | 419 | 423 | |||||
Other liabilities | 360 | 1,256 | |||||
Interest payable - Convertible Notes | 2,272 | 2,272 | |||||
Convertible Notes, net of discount | 58,609 | 55,881 | |||||
Interest payable - Secured Notes | — | 261 | |||||
Secured Notes, net of discount | — | 24,036 | |||||
White Eagle Revolving Credit Facility, at estimated fair value (VIE) | 169,131 | 145,831 | |||||
Red Falcon Revolving Credit Facility, at estimated fair value (VIE) | 55,658 | — | |||||
Deferred tax liability | — | 8,728 | |||||
Total liabilities | 289,500 | 244,828 | |||||
Commitments and Contingencies | |||||||
Stockholders’ Equity | |||||||
Common stock (par value $0.01 per share, 80,000,000 authorized; 28,130,508 and 21,402,990 issued and outstanding as of December 31, 2015 and 2014, respectively) | 281 | 214 | |||||
Preferred stock (par value $0.01 per share, 40,000,000 authorized; 0 issued and outstanding as of December 31, 2015 and 2014) | — | — | |||||
Treasury Stock, net of cost (608,000 and 0 shares as of December 31, 2015 and 2014, respectively) | (2,534 | ) | — | ||||
Additional paid-in-capital | 305,450 | 266,705 | |||||
Accumulated deficit | (82,840 | ) | (51,816 | ) | |||
Total stockholders’ equity | 220,357 | 215,103 | |||||
Total liabilities and stockholders’ equity | $ | 509,857 | $ | 459,931 | |||
Selected Operating Data (dollars in thousands):
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Period Acquisitions — Policies Owned | ||||||||||||||||
Number of policies acquired | 2 | 14 | 43 | 16 | ||||||||||||
Average age of insured at acquisition | 71.0 | 85.3 | 85.0 | 85.2 | ||||||||||||
Average life expectancy — Calculated LE (Years) | 9.3 | 6.0 | 5.4 | 5.9 | ||||||||||||
Average death benefit | $ | 485 | $ | 4,053 | $ | 2,811 | $ | 4,444 | ||||||||
Aggregate purchase price | $ | 160 | $ | 12,807 | $ | 30,695 | $ | 16,296 | ||||||||
End of Period — Policies Owned | ||||||||||||||||
Number of policies owned | 632 | 607 | 632 | 607 | ||||||||||||
Average Life Expectancy — Calculated LE (Years) | 9.9 | 10.7 | 9.9 | 10.7 | ||||||||||||
Aggregate Death Benefit | $ | 2,979,352 | $ | 2,931,066 | $ | 2,979,352 | $ | 2,931,066 | ||||||||
Aggregate fair value | $ | 461,925 | $ | 388,886 | $ | 461,925 | $ | 388,886 | ||||||||
Monthly premium — average per policy | $ | 9.1 | $ | 7.8 | $ | 9.1 | $ | 7.8 | ||||||||