Abacus Life, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The filing registrant is Abacus Life, Inc. (Nasdaq: ABL; warrants: ABLLW). The business combines life-settlement origination and servicing with purchasing, trading, and managing life insurance policies.
Business context and comparability
The business combination with East Resources Acquisition Company closed on June 30, 2023. The consolidated statements continue the financial history of Longevity Market Assets (LMA), while Abacus Settlements was accounted for as an acquisition on the closing date. Accordingly, reported 2023 results do not represent a full quarter of combined operations, and comparisons with 2022 are not fully like-for-like. The filing also includes separate predecessor financial statements for Abacus Settlements.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $11.38 million | $8.40 million | $21.58 million | $18.28 million |
| Gross profit | $10.41 million | $7.73 million | $20.12 million | $16.19 million |
| Operating income | $8.37 million | $5.33 million | $15.83 million | $12.46 million |
| Net income | $6.72 million | $5.09 million | $14.35 million | $11.92 million |
| Net income attributable to Abacus Life, Inc. | $6.75 million | $4.68 million | $14.84 million | $11.52 million |
- Q2 revenue increased about 35%; first-half revenue increased about 18%. Active management revenue was $11.02 million in Q2 and $20.99 million for the first half, driven by policy sales, maturities, and fair-value changes. Portfolio servicing revenue was $354,000 in Q2 and $590,000 for the first half; it declined year over year for the half, partly because of fewer non-recurring consulting projects.
- Gross margin was approximately 91% in Q2 and 93% for the first half. Reported operating income includes fair-value movements in debt and investments. The company reported Q2 net income margin of 59.1% and first-half net income margin of 66.5%.
- Management’s non-GAAP Adjusted EBITDA was $9.14 million for Q2 and $17.43 million for the first half, versus $6.71 million and $13.89 million, respectively, in 2022. This measure excludes several items, including fair-value changes; it should not be treated as a substitute for GAAP earnings or cash flow.
- Separate Abacus Settlements predecessor results show Q2 revenue of $6.88 million and a net loss of $318,000, versus revenue of $5.69 million and a net loss of $90,000 a year earlier. First-half revenue was $13.18 million, with a net loss of $975,000. Its gross margin declined to 29% for Q2 from 37%.
Cash flow, debt, and liquidity
- At June 30, cash and cash equivalents were $20.61 million, down from $30.05 million at December 31, 2022. Current assets were $32.21 million and current liabilities $13.89 million; current assets include $10.47 million due from affiliates.
- First-half operating cash flow was negative $38.36 million, compared with negative $4.75 million in 2022, primarily reflecting purchases of life-settlement policies: $39.56 million at fair value and $11.37 million at cost. Investing cash outflow was $7.06 million, including $6.76 million due from affiliates. Financing cash inflow was $35.98 million.
- Balance-sheet debt included $66.17 million of long-term debt measured at fair value and a separate $25.00 million SPV purchase-and-sale note. The $66.17 million includes a $10.47 million unsecured Sponsor PIK note. The company also had $2.44 million of warrant liabilities.
- On July 5, 2023, after quarter-end, the company entered into an Owl Rock facility with a $25 million initial term loan and up to $25 million of delayed-draw loans, subject to conditions. It is secured by substantially all assets, bears interest at SOFR plus 7.25% or the alternative base rate plus 6.25%, and includes leverage and liquidity covenants. A separate SPV facility provides $25 million at 12% interest paid in kind, maturing in 2026; the filing says the proceeds were received before June 30 and recorded at period-end.
Material changes, outlook, and risks
- The business combination added $140.29 million of goodwill and $32.90 million of identifiable intangible assets. Acquisition accounting, including deferred taxes, was preliminary at filing; final amounts may change.
- Life-settlement policy assets grew substantially: 167 policies were held at June 30, including 122 carried at fair value. The $56.69 million fair value of those policies is based on Level 3 inputs, including actuarial assumptions and discount rates. The valuation used a 16% discount rate; a two-percentage-point increase would reduce estimated fair value by about $2.70 million, while a two-point decrease would increase it by about $3.17 million.
- Management described plans to continue expanding active management, origination, technology, and marketing. It anticipated headcount growth of 36% from December 2022 to December 2024, with 18% already achieved at the time of the filing. No specific revenue or earnings guidance was provided.
- Key risks include uncertainty in life expectancies and policy valuations, mortality timing and premium requirements, market movements affecting S&P 500-linked assets and debt, interest costs and covenant compliance, and reliance on financing and policy transactions. Revenue and receivables include related-party activity and customer concentration. Management reported no litigation expected to have a material adverse effect.
- The filing identifies a material weakness related to financial instruments and accounting for accruals, and describes planned remediation. It also states there were no quarterly changes in internal control over financial reporting that materially affected, or were reasonably likely to materially affect, controls.
Important facts for investors to verify
- Review the final purchase-price allocation, deferred-tax accounting, and any subsequent adjustments to acquisition goodwill and intangible assets.
- Reconcile the period-end SPV note and subsequent Owl Rock and SPV financing terms, including covenant headroom, interest burden, and available liquidity.
- Assess the assumptions, sensitivity, and realized sale prices behind Level 3 policy valuations, including policy premium needs and mortality experience.
- Monitor the share of revenue, policy sourcing, receivables, and costs involving related parties or concentrated customers, as well as the sustainability of active-management gains.
- Track remediation of the reported material weakness and confirm whether subsequent filings report improved controls.