Abacus Global Management, Inc. annual report, FY2023

Business context and reporting period

Filing: Annual report for the fiscal year ended December 31, 2023, filed March 21, 2024. The filing identifies the registrant as Abacus Life, Inc.; the request metadata names Abacus Global Management, Inc., so confirm the intended issuer. Abacus originates life settlements, manages and trades policies, and provides policy servicing. The business combination with LMA and Abacus Settlements closed June 30, 2023, materially changing the company’s reporting scope and comparability with 2022.

Financial performance and condition

Gross margin was approximately 90% in 2023 versus 87% in 2022, while GAAP net margin fell to 13.6% from 72.4%. Adjusted net income was $29.4 million versus $32.4 million; adjusted diluted EPS was $0.51 versus $0.64. These non-GAAP measures are company-defined and should not be treated as substitutes for GAAP results.

At December 31, 2023, total assets were $331.8 million and stockholders’ equity was $164.1 million. Reported total debt at fair value was approximately $139.8 million, including current debt of $13.0 million. The company issued $35.65 million of 9.875% senior unsecured notes due 2028 in November 2023 and used proceeds primarily to repay its Owl Rock facility. It also had related-party borrowings, including a 12% PIK Sponsor note and a 12% PIK SPV note. No common-stock dividends had been paid, and none were anticipated in the foreseeable future.

Material changes versus the prior period

• Revenue rose 48.5%, led by active management revenue of $61.2 million, up 41.5%. The increase included substantially higher fair-value policy revenue; investment-method policy revenue declined 52.5%.
• Servicing revenue fell 31.9% to $1.0 million, primarily because of fewer non-recurring consulting projects. Origination revenue of $4.2 million was reported after the June business combination.
• Net income attributable to the company declined to $9.5 million from $31.7 million. Higher G&A, amortization, interest expense, and a $4.2 million warrant fair-value loss contributed to the decline.
• Operating cash flow shifted to a $64.5 million use, principally reflecting $80.6 million of net cash used to purchase fair-value life settlement policies.
• Life settlement holdings expanded: 296 policies at year-end, with $520.5 million aggregate face value and $122.3 million fair value for fair-value-method policies. The company reported 53 policies at year-end 2022.

Outlook, risks, contingencies, and unusual items

Management describes growth opportunities in policy origination, investor access, servicing, and technology, but provides no quantitative revenue, earnings, or cash-flow guidance. The marketplace platform remains at an early development stage, and management does not expect it to have a material near-term financial impact. The company authorized a share repurchase program of up to $15 million over 18 months; $1.3 million had been spent by year-end, leaving $13.7 million authorized.

Key risks include uncertainty in life expectancy estimates and policy valuations; fair-value measurements rely on significant Level 3 inputs. The company used a 21% weighted-average discount rate for policy valuations; a two-percentage-point increase would reduce estimated fair value by $11.1 million, while a two-point decrease would increase it by $8.5 million. Other risks include policy-market liquidity and competition, premium increases or policy lapse, insurer credit exposure, evolving insurance and securities regulation, privacy and cybersecurity, related-party exposures, and leverage and refinancing needs.

Other notable items: the business combination resulted in $140.3 million of goodwill and $32.9 million of acquired intangible assets; no impairment was recorded in 2023. The company reported that previously identified internal-control material weaknesses were remediated by year-end, but management did not assess internal control over financial reporting for 2023 and the auditor provided no ICFR attestation. The auditor issued an unqualified opinion on the financial statements. No material legal proceedings were reported.

Subsequent to year-end, the company issued an additional $25 million of 9.875% notes in February 2024; certain warrant exercises generated $3.5 million by March 15, 2024. The filing states management found no conditions raising substantial doubt about the company’s ability to continue as a going concern within one year of financial-statement issuance.

Most important facts for investors to verify

• Confirm the intended registrant: the filing is for Abacus Life, Inc., whereas the request metadata names Abacus Global Management, Inc.
• Assess how much 2023 revenue and profit depended on unrealized policy fair-value gains, and review the sensitivity of Level 3 valuations to mortality and discount-rate assumptions.
• Reconcile the sharp change in operating cash flow with policy purchases, premium obligations, and the availability of cash or policy-sale proceeds to meet liquidity needs.
• Review debt maturities, interest and PIK terms, covenants, and the additional $25 million notes issued after year-end; distinguish consolidated fund borrowings from corporate obligations.
• Evaluate year-over-year comparability given the June 2023 business combination, predecessor reporting, and the filing’s pro forma measures.
• Review related-party revenue, financing, and servicing arrangements, along with the status and testing of remediated internal controls.