Emergent Capital, Inc. Announces Third Quarter 2020 Results
Company Reports Book Value of $0.37 per Share
Boca Raton, Fla., October 15, 2020 – Emergent Capital, Inc. (OTCQX: EMGC) ("Emergent" or the "Company"), today reported its financial results for the third fiscal quarter ended August 31, 2020.
Emergent indirectly owns a 27.5% equity investment, having an estimated fair value of approximately $152.5 million at August 31, 2020, in White Eagle Asset Portfolio, LP ("White Eagle"), which holds a portfolio of life settlements and was previously a wholly-owned subsidiary of the Company. The Company primarily earns income through change in fair value and distributions from its equity investment in White Eagle.
Third Quarter 2020 and Recent Highlights
•Total income from continuing operations was $4.3 million as compared to income of $86.9 million in the prior year quarter;
•Net loss from continuing operations was $1.0 million, or $0.01 loss per diluted share, as compared to a net income from continuing operations of $80.2 million, or $0.41 per diluted share in the prior year quarter;
•White Eagle had 13 policies maturity with a face value of approximately $43.2 million, gain on maturity of $30.0 million, and weighted average age at maturity of 88.9 years with an average remaining life expectancy of 54 months or 4.5 years;
White Eagle Portfolio Highlights
| Three Months Ended August 31, 2020 | |||||||||||
| (dollars in thousands) | |||||||||||
Life insurance policies | 500 | ||||||||||
| Face value of life settlements | $ | 2,367,540 | |||||||||
| Average age of insured (years) | 85.9 | ||||||||||
| Average life expectancy of insured (years) | 6.6 | ||||||||||
Average death benefit per policy | $ | 4,735 | |||||||||
Average monthly premium per policy | $ | 17.4 | |||||||||
"White Eagle performed well in the third quarter with 13 policy maturities that yielded an aggregate benefit of $43.2 million," said Pat Curry, Emergent’s Chairman and Chief Executive Officer. "While COVID-19 has slowed the processing times to produce and confirm death certificates in certain states, which has impacted White Eagle collections, we believe this to be a temporary issue that will not have a lasting or material impact on distributions."
Three Months Ended August 31, 2020 Financial Results Summary
•Income from continuing operations was $4.3 million, a decrease of $82.6 million from the prior year quarter, primarily driven by:
◦$2.0 million distribution from the investment in the limited partnership;
◦$2.3 million change in the fair value of the investment in limited partnership excluding distribution; and
◦$90.7 million reduction in change in fair value gain for deconsolidated subsidiaries included in prior year quarter due to the re-consolidation of Lamington and related subsidiaries.
•Total expense from continuing operations was $5.3 million, a decrease of $1.4 million from the prior year quarter, primarily due to:
◦$1.3 million decrease in SG&A expenses attributable to a decrease in legal expense, a decrease in professional fees, a decrease in personnel costs.
•Net loss from continuing operations of $1.0 million, or $0.01 loss per diluted share, for the three months ended August 31, 2020, compared to a net income from continuing operations of $80.2 million, or $0.41 loss per diluted share for the three months ended August 31, 2019.
Nine Months Ended August 31, 2020 Financial Results Summary
•Total income from continuing operations was $32.2 million as compared to income of $34.2 million in the prior year;
•Net income from continuing operations was $16.1 million, or $0.09 per diluted share, as compared to a net income from continuing operations of $16.9 million, or $0.10 per diluted share in the prior year;
•White Eagle had 33 policies maturity with a face value of approximately $133.3 million, gain on maturity of $78.5 million, weighted average age at maturity of 88.6 years with an average remaining LE of 49 months or 4.1 years;
•Income from continuing operations was $32.2 million, a decrease of $2.0 million from the prior year, primarily driven by:
◦$11.4 million net proceeds from the Sun Life settlement;
◦$6.0 million distribution from the investment in the limited partnership;
◦$14.6 million change in the fair value of the investment limited partnership excluding distribution; and
◦$37.9 million reduction in change in fair value gain for deconsolidated subsidiaries included in prior year due to the re-consolidation of Lamington and related subsidiaries.
•Total expense from continuing operations was $13.7 million, an decrease of $476,000 from the prior year, primarily due to a combination of:
◦$2.8 million gain on extinguishment of the Convertible Notes; and
◦$3.1 million increase in SG&A expenses attributable in part to one time executive retention agreements and legal and professional fees.
Investment in Limited Partnership Quarterly Highlights:
•For the third quarter of fiscal 2020, Emergent’s 27.5% equity investment in White Eagle resulted in a fair value of approximately $152.5 million;
•The portfolio experienced 13 policies maturity with aggregate face value of approximately $43.2 million, gain on maturity of $30.0 million, weighted average age of 88.9 years and weighted average remaining life expectancy of 4.5 years. The ratio of realized gain to face value was approximately 69%;
•The premium/expense reserve account received approximately $34.2 million from the collection account coming from maturity proceeds collected;
•Approximately $30.3 million was distributed from the premium/expense reserve as follows:
◦ $26.6 million was utilized to pay premiums;
◦ $1.7 million was used to pay facility-related expenses; and
◦ $2.0 million was utilized for distribution to Emergent to satisfy the requirement of the Class B monthly distribution.
Investment in Limited Partnership Nine Months Ended August 31, 2020
•The portfolio experienced 33 policies maturity with aggregate face value of approximately $133.3 million, gain on maturity of $78.5 million, weighted average age of 88.6 years and weighted average remaining life expectancy of 4.1 years. The ratio of realized gain to face value was approximately 59%;
•Approximately $10.0 million in maturity proceeds was distributed to the Class A Partner to satisfy the Class A minimum return from the collection account;
•The premium/expense reserve account received approximately $107.2 million from the collection account coming from maturity proceeds collected;
•Approximately $85.2 million was distributed from the premium/expense reserve as follows:
◦ $74.0 million was utilized to pay premiums;
◦ $5.2 million was used to pay facility-related expenses; and
◦ $6.0 million was utilized for distribution to Emergent to satisfy the requirement of the Class B monthly distribution.
Subsequent Event
On October 15, 2020, Emergent and its wholly-owned subsidiary Red Reef Alternative Investment, LLC filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. More information was disclosed by the Company in its Current Report on Form 8-K filed with the Securities and Exchange Commission on October 15, 2020.
The Company had 158,655,140 shares of common stock outstanding, treasury shares of 608,000 and an undiluted book value of $0.37 per share at August 31, 2020.
About Emergent Capital, Inc.
Emergent (OTCQX: EMGC) 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: | ||||||||
| Investor Relations | ||||||||
| Rob Fink | ||||||||
| FNK IR | ||||||||
| 646.809.4048 | ||||||||
| IR@emergentcapital.com | ||||||||
| www.emergentcapital.com | ||||||||
Emergent Capital, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended August 31, | Three Months Ended August 31, | Nine Months Ended August 31, | Nine Months Ended August 31, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||||||||
| Income | |||||||||||||||||||||||||||||||||||||||||
| Change in fair value of life settlements | $ | — | $ | (42) | $ | — | $ | (37) | |||||||||||||||||||||||||||||||||
| Change in fair value of investment in limited partnership, net of distributions | 4,250 | (5,821) | 20,601 | (5,821) | |||||||||||||||||||||||||||||||||||||
| Change in fair value of investment in deconsolidated subsidiaries | — | 90,710 | — | 37,941 | |||||||||||||||||||||||||||||||||||||
| Gain on life settlements, net | — | — | 743 | — | |||||||||||||||||||||||||||||||||||||
| Other income | 57 | 2,052 | 10,875 | 2,145 | |||||||||||||||||||||||||||||||||||||
| Total income (loss) | 4,307 | 86,899 | 32,219 | 34,228 | |||||||||||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||||||||
| Interest expense | 2,743 | 2,832 | 7,610 | 8,370 | |||||||||||||||||||||||||||||||||||||
| Extinguishment of debt | — | — | (2,815) | — | |||||||||||||||||||||||||||||||||||||
| Personnel costs | 444 | 694 | 2,833 | 1,001 | |||||||||||||||||||||||||||||||||||||
| Legal fees | 738 | 1,448 | 1,850 | 2,117 | |||||||||||||||||||||||||||||||||||||
| Professional fees | 619 | 1,142 | 2,034 | 1,470 | |||||||||||||||||||||||||||||||||||||
| Insurance | 519 | 270 | 1,360 | 666 | |||||||||||||||||||||||||||||||||||||
| Other selling, general and administrative expenses | 272 | 317 | 792 | 516 | |||||||||||||||||||||||||||||||||||||
| Total expenses (income) | 5,335 | 6,703 | 13,664 | 14,140 | |||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (1,028) | 80,196 | 18,555 | 20,088 | |||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | — | (5) | 2,428 | 3,213 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | (1,028) | $ | 80,201 | $ | 16,127 | $ | 16,875 | |||||||||||||||||||||||||||||||||
| Discontinued Operations: | |||||||||||||||||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | — | 70 | (53) | 36 | |||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss)from discontinued operations | — | 70 | (53) | 36 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (1,028) | $ | 80,271 | $ | 16,074 | $ | 16,911 | |||||||||||||||||||||||||||||||||
| Income (loss) per share: | |||||||||||||||||||||||||||||||||||||||||
| Basic income (loss) per share | |||||||||||||||||||||||||||||||||||||||||
| Continuing operations | $ | (0.01) | $ | 0.51 | $ | 0.10 | $ | 0.11 | |||||||||||||||||||||||||||||||||
| Discontinued operations | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||
| Net income (loss) - basic | $ | (0.01) | $ | 0.51 | $ | 0.10 | $ | 0.11 | |||||||||||||||||||||||||||||||||
| Diluted (loss) income per share | |||||||||||||||||||||||||||||||||||||||||
| Continuing operations | $ | (0.01) | $ | 0.41 | $ | 0.09 | $ | 0.10 | |||||||||||||||||||||||||||||||||
| Discontinued operations | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||
| Net income (loss) - diluted | $ | (0.01) | $ | 0.41 | $ | 0.09 | $ | 0.10 | |||||||||||||||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||||||||
| Basic | 157,655,140 | 156,968,470 | 157,624,241 | 156,949,425 | |||||||||||||||||||||||||||||||||||||
| Diluted | 157,655,140 | 195,979,957 | 206,696,703 | 194,867,908 | |||||||||||||||||||||||||||||||||||||
Emergent Capital, Inc.
CONSOLIDATED BALANCE SHEETS
| August 31, 2020 | November 30, 2019* | ||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (In thousands except share data) | |||||||||||||||||
| ASSETS | |||||||||||||||||
| Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 19,054 | $ | 24,283 | |||||||||||||
| Certificates of deposit | 517 | 511 | |||||||||||||||
| Prepaid expenses and other assets | 1,152 | 377 | |||||||||||||||
| Operating lease asset | 22 | — | |||||||||||||||
| Deposits - other | 1,212 | 1,377 | |||||||||||||||
| Life settlements, at estimated fair value | — | 1,297 | |||||||||||||||
| Fixed assets, net | — | 18 | |||||||||||||||
| Investment in limited partnership, at estimated fair value | 152,450 | 137,849 | |||||||||||||||
| Total assets | $ | 174,407 | $ | 165,712 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| Liabilities | |||||||||||||||||
| Accounts payable and accrued expenses | $ | 1,337 | $ | 1,651 | |||||||||||||
| Other liabilities | — | 86 | |||||||||||||||
| Operating lease liability | — | — | |||||||||||||||
| Interest payable - 5.0% Convertible Notes | 159 | 1,116 | |||||||||||||||
| 5.0% Convertible Notes, net of discount and deferred debt costs | 64,420 | 71,022 | |||||||||||||||
| Interest payable - 8.5% Senior Secured Notes | 1,118 | 854 | |||||||||||||||
| 8.5% Senior Secured Notes, net of deferred debt costs | 46,491 | 45,675 | |||||||||||||||
| Current tax liability | 2,623 | 3,195 | |||||||||||||||
| Total liabilities | 116,148 | 123,599 | |||||||||||||||
| Commitments and Contingencies | |||||||||||||||||
| Stockholders’ Equity | |||||||||||||||||
| Common stock (par value $0.01 per share, 415,000,000 authorized at August 31 ,2020 and November 30, 2019; 159,263,140 issued and 158,655,140 outstanding as of August 31, 2020; 158,365,275 issued and 157,757,275 outstanding as of November 30, 2019) | 1,593 | 1,584 | |||||||||||||||
| Preferred stock (par value $0.01 per share, 40,000,000 authorized; 0 issued and outstanding as of August 31, 2020 and November 30, 2019) | — | — | |||||||||||||||
| Treasury Stock, net of issuance cost 608,000 shares as of August 31, 2020 and November 30, 2019) | (2,534) | (2,534) | |||||||||||||||
| Additional paid-in-capital | 334,641 | 334,576 | |||||||||||||||
| Accumulated deficit | (275,441) | (291,513) | |||||||||||||||
| Total stockholders’ equity | 58,259 | 42,113 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 174,407 | $ | 165,712 | |||||||||||||
* Derived from audited consolidated financial statements.