GWG Holdings, Inc.

Thank you, Courtney, and good afternoon, everyone. Welcome to the GWG Holdings’ fourth quarter and full year 2016 earnings call.

On the call with me today are Jon Sabes, our Chairman and CEO; and Bill Acheson, Chief Financial Officer. Following their remarks, we’ll be happy to take your questions.

Some statements made on the call today along with any projected financial results include forward-looking statements subject to certain risks and uncertainties. Any forward-looking statements made on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our earnings release and in our most recent 10-K and 10-Q reports. During the call, you will hear references to various non-GAAP financial measures, which we believe enhance understanding of our performance.

Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in the press release available on our website. Please note that today’s conference call is being recorded and will be available through next Wednesday, March 15th.

Replay details are available by going to our website at gwgh.com and through the Investor Relations tab. And with that, I will turn it over to Jon Sabes, Chairman and CEO of GWG Holdings.

Thank you, Dan, and good afternoon, everyone. This year marks our 11th year in business and in many ways 2016 marks our most significant year in terms of growth and development since emerging from the credit crisis in 2009 when we were forced to reinvent our business.

So let me reflect on a progress we made in 2016 and what we see ahead in the following three areas of our business; first, the life insurance secondary market; second, our capital markets and portfolio growth activities; and third, our insurtech opportunity using mortality predictive technology we option from UCLA. So first, the life insurance secondary market and our participation within, the key elements to robust life insurance secondary market are capital formation, stable regulatory environment and value-added consumer products and services.

In terms of capital formation, we see growing demand from capital for the life insurance asset class as investors are attracted to key aspects of the asset. These include the potential that earn double-digit returns on the investments, the credit quality of the life insurance carrier obligors, and then non-correlated performance of the underlying asset.

In terms of the regulatory environment, we’ve witnessed a stable regulatory landscape for several years now. And a stable regulatory environment is key in terms of continued growth of capital formation around the asset class.

To the extent, we see any regulatory movement, we see it in an effort to continue to protect and preserve the right of consumers to access the value of the secondary market. In terms of consumer value, we’re making an impact.

In 2016, we returned $82 million to seniors for their life insurance policies, as compared to $7 million of cash surrender value offered by carriers on the same policies. This is an over 10 times value improvement for consumers from traditional options offered.

These numbers are self-evident as to this the positive social impact, our business and that of the secondary market is having on people’s lives. And because of this a stable regulatory environment and continued capital formation, we see these trends continuing in 2017 and well beyond.

I want to reiterate that the life insurance secondary market business is a long-term business and while we report quarter-to-quarter, it will take time for us to realize this tremendous market opportunity. I also want to report that GWG is well-positioned to lead in the market as we continue to develop the strategies and tactics we have been investing in for years, specifically in our direct originations and in our underwriting and processing protocols.

Insurance direct origination we have been investing and we’ll continue to invest in the development of our team, we call GWG West. This team, based in Las Vegas, Nevada became full time employees of GWG in 2016 and they power our ability to deliver our products and services directly through a growing network of appointed agents.

I’m happy to report that this team is now making great progress on a scalable platform contacting hundreds of life insurance agents daily with our message of value and opportunity. I can tell you that I personally read their call summaries and we – that we are having with life insurance agents and that our message of value and opportunity is resonating life insurance agents across the country.

Not surprisingly we are seeing an ever increasing army of life insurance agents who believe that GWG as a NASDAQ listed company is delivering the right program such as they feel comfortable in bringing our products and services directly to their clients. And we can see this happening in terms of the volume of case submissions.

In Q4, 43% of the policies we purchased came directly as a result of these efforts. And these efforts will be in vain had we not taken the time to develop underwriting and processing protocols that enable our products and services to be delivered efficiently and seamlessly.

Throughout 2016 I have reported that we are developing state-of-the-art processing protocols for case submissions, underwriting, and closing. We’ve reduced processes and timelines that once took months to weeks and sometimes even days.

Solving for these operational efficiencies is neither easy nor glamorous, but they are necessary for the marketplace of life insurance agents and customers do have positive experiences with the products and services we offer. Our team is growing ever more sophisticated and efficient with our direct origination business.

And our process is built on a scalable platform that will continue to yield benefits for years to come. Overall I believe this aspect of GWG’s business is that’s a completely unique status within the marketplace from which we will continue to deliver valuable products and services to life insurance agents across the United States.

Second, our capital markets and portfolio growth activities. While our CFO, Bill Acheson is going take us through the numbers in more detail.

I want to preview a few highlights. As these capital markets and portfolio growth activities are directly related to our overall profitability and shareholder value creation.

In 2016, we raised $210 million including $57 million in preferred equity. We close to 10 years senior credit facility to finance our portfolio over its duration and we eliminated the sale of short-term debt.

And we are now halfway through a balance sheet transition wherein we seek to better duration match our financing with significant equity. We maintained a liquidity position of $121 million as of December 31, and we received over $48 million in cash flows from our portfolio in 2016.

As of December 31, we own $1.4 billion and face value of life insurance policy benefits, $479 million or 35% of which are with insured 85 years or older. All of these highlights are finally leading us to a scaled business we seek to create in order to take advantage of the opportunity in front of us.

And these highlights this year more than any year prior are foundational for a scaled business that can consistently deliver profitability and cash flows for years to come. Third, our insurtech opportunity, in 2016, we announced that we had option mortality predictive technology from UCLA.

This technology was created by a leading biostatistician and geneticist, Dr. Steve Horvath.

Dr. Horvath discovered in 2013 that we humans have a biological age just like our chronological age.

And he summarized that biological age just like chronological age was predictive of all-cause mortality. In 2015, we began working with Dr.

Horvath and his concept of biological age with the idea to develop predictive biomarkers and algorithms for all-cause mortality. In September of 2016, Dr.

Horvath published a discovery that after completing a meta-analysis covering 13,000 individuals and over 3,000 mortalities, he was able to identify a set of DNA methylation-based biomarkers and create associated algorithms that were highly predictive of all-cause mortality. I want to stress this peer reviewed science conclusively demonstrated that certain methylation-based biomarkers are predictive of all-cause mortality.

And it is from this point forward that we have been working to translate the science into a commercialized process and in actuarial underwriting mile. To do this, we hired experts, Dr.

Brian Chen who joined the company as co-authored the research and discoveries of Dr. Horvath.

And we retained insurtech leader Tom Nodine. Tom has helped us translate the science into an actuarial model and he is helping us explore the application of the technology to the greater insurance industry.

I’m happy to report that we’ve translated the science into actuarial tables and this process has been reviewed and affirmed by leading actuaries. As a result, we’ve taken actions.

We put this science into practice and we’re now testing insureds whose life insurance policies we intend to purchase. I want to emphasize that we have not changed our underwriting process, but at this time, we are simply gathering information.

We’re comparing the results of traditional methods of life expectancy underwriting to new methods of life expectancy underwriting. In terms of the opportunity with insurtech, we’ve continued to quantify and calibrate how our predictive at the generic technology will be best deployed in the larger insurance industry.

That said as recently as yesterday at a leading life insurance conference where genetic icon Craig Venter was the keynote speaker, leaders from the world’s largest reinsurance companies were discussing on a panel this very topic. Their conclusion, the genie is out of the bottle.

Insurtech is happening, genetic testing is reality and as technology develops the change is going to be dramatic and the industry will be challenged with foundational shifts that will occur with the advent of these new technologies. We plan to participate in these foundational shifts with the technology develop by Dr.

Horvath, as we have been growing in our confidence that epigenetic testing, which differs a significantly from genetic testing will be the place at which life insurance, technology and underwriting intersect. So, as we look ahead, we have growing optimism and confidence for the robust development of a life insurance secondary market that delivers valuable products and services to consumers.

We have a growing optimism and confidence that the strategies we have chosen to lead in this market are the right ones. And we have a growing optimism and confidence that we own an exciting piece of technology that has the promise to deliver huge value in an all-but-certain insurtech revolution that is well underway.

We can have this optimism and confidence in our capability to execute on our business plan because of the support that we continue to receive from our many broker-dealer and financial advisor partners. We will continue to make significant progress in the areas of focus I have mentioned, translating actions of GWG into shareholder value.

Our focus every day is to be the best version of ourselves, and reflect that through our corporate actions and the results we deliver. I’m now going to turn the call to our Chief Financial Officer, Bill Acheson, who will walk us through our financial results for the year ending December 31, 2016.

Bill?

Thanks, Jon. I’m going to start with a high-level review of our kind of key goals and activities to help simplify how to think about our business.

I will then walk through our key metrics, some of which will be very familiar to those of you who have been on the call before. And I’ll finally touch on the balance sheet before turning it back over to Courtney for Q&A.

So just as a reminder, and a simple reminder of kind of what we do and what our goals are, we raise debt and equity capital from independent financial advisors to purchase, service, and finance life insurance policies in the secondary market. We seek to earn the spread between our total cost to acquire, service and finance the policies, and the policy benefits that we will collect.

Thirdly, we seek to build a large portfolio of life insurance policies so we can achieve the realization of this spread in the form of consistent cash flows and earnings. And last but not least, we offer tremendous value to the sellers of these policies: seniors across America seeking resources for retirement and healthcare expenses.

As Jon mentioned, in 2016 alone, we paid over $82 million to these seniors, which is more than 10 times the surrender value offered by the insurance carriers. Since inception of our Company 11 years ago, we have paid these same seniors almost $400 million for their policies.

These are real dollars going into the hands of real people. So all of the following metrics that we will talk about have something to do with one or more of these four simple business objectives.

Again, for those of you who have attended our calls, this information will sound very familiar. And this is intentional, as we remain highly focused on these metrics.

Number one, the financial advisors. As Jon mentioned, they are the engine of growth of our debt and equity capital that fuels our business.

At 12/31/16, there were 4,679 financial advisors approved to sell our investment products. This represents substantial growth from a year ago, and is a testament to our ability to attract and retain a network of financial advisors.

Number two, investment product sales. Investment product sales drive our ability to grow our portfolio.

We raised $44 million of capital through the sales of our investment products in the fourth quarter of 2016. For the full year of 2016, as Jon mentioned, we raised a record $210 million of capital from the sale of these products.

This compares to $122 million for all of 2015. Number three, portfolio growth.

In the fourth quarter of 2016, we acquired $104 million in face amount of policy benefits. This represents the fourth consecutive quarter of acquisition volume over $100 million at face amount.

For the year of 2016, we acquired $466 million in face amount of benefits versus $197 million acquired in 2015, representing 136% growth year-over-year. At year-end, our portfolio stood at approximately $1.4 billion in face amount, containing 690 policies covering 622 lives.

Finally, during 2016 our portfolio grew by $417 million in face value or 44%, net of realized benefits. Number four is the direct acquisition of our life insurance policies.

As Jon mentioned, creating a large and diversified portfolio origination capability is a key goal for us; and, when accomplished, will create significant shareholder value, in our view. In the fourth quarter of 2016, 43% of our policy acquisition came from our direct origination channels.

This is compared to 11% in the fourth quarter of 2015. For the full year of 2016, direct originations accounted for 31% of policies acquired versus 21% for the full year of 2015.

The driver of this growth is our proprietary appointed agent program, which allows financial advisors and life insurance agents a convenient and compliant way to source policies for GWG. To that end, at 12/31/16, we had 3,440 appointed agents, up 141% over the year-ago total of 1,775.

Our fifth metric is portfolio cash flows, and it is obviously a key metric for us, and one that we keep a very close eye on. In 2016, we realized $48.5 million in policy benefits, which is up over 50% from the $31.2 million realized in 2015.

As for future cash flows, we remain optimistic as the amount of the current portfolio associated with insureds aged 85 or greater is $479 million, or 35% of the total portfolio face amount, at year-end. The amount associated with insureds aged 90 or greater at year-end was $123 million.

It should be noted that thus far in Q1 of this year, so from January 1 through today, we have recognized an additional $16 million of policy benefits. Now, our GAAP results.

For the fourth quarter ended December 31, 2016, we reported a GAAP net loss of $3.1 million or $0.52 per basic and fully diluted share outstanding, on revenue of $16.9 million. These numbers compare favorably to the fourth quarter of 2015, where we reported a net loss of $4.8 million or $0.80 per basic and fully diluted share, on revenue of $6 million.

For the year ended December 31, 2016, we reported GAAP net loss of $3.1 million or $0.53 per basic and fully diluted share outstanding, on revenue of $69.5 million. These numbers compare favorably to the full year of 2015, where we reported a net loss of $7.4 million or $1.25 per basic and fully diluted share, on revenue of $39.6 million.

Comparing full-year results year-over-year, we find revenue up approximately 75%, due mainly to higher realized gains from the recognition of policy benefits and higher unrealized gains from new policy acquisitions during the year. Total expenses were up 43%, mainly due to higher interest costs on higher debt balances outstanding, and higher employee and operating costs due to the Company’s growth.

Although our costs have been growing in absolute terms, they were down in 2017 relative to 2016, in terms of the amount of capital that we raised and both the number and face amount of insurance policies purchased. Finally, our last metric is our adjusted non-GAAP income.

We calculate our net income on an adjusted non-GAAP basis. And we do this because we feel this measure better highlights the value accruing within the portfolio prior to the maturity of the insured.

Once an insurance policy has been recorded on our books at acquisition, it generally produces GAAP losses until the maturity date. This is because the premium and interest payments are expensed on a monthly basis.

And the sum of these expenses typically outweighs the increase in value of the policy from the passage of time, on a GAAP basis. Our non-GAAP measure treats these premium and financing costs as additions to our cost basis, to which we apply our expected internal rate of return to accrue or to simulate non-GAAP income.

This has the effect of smoothing the recognition of income versus the GAAP measurement that can be, and, in fact, has been lumpy, corresponding to the lumpy mortality events within our portfolio. As an example of this can be found in the current quarter.

As I previously mentioned, from the beginning of 2017 through today, we have recognized $16 million in policy benefits. On a GAAP basis, these gains or losses are concentrated into the specific quarter of the event, whereas the non-GAAP measure attempts to smooth this recognition over the life of the policy.

So our adjusted non-GAAP income for the fourth quarter of 2016 was $11.5 million or $1.92 per basic share outstanding. And for the full year ended 12/31/16, our adjusted non-GAAP income was $38.6 million or $6.48 per basic share outstanding.

Now, I’m just going to repeat a couple things that Jon said about the balance sheet before we turn it over to Q&A because I think it’s really important. And we’ve made significant progress in 2017 relative to our balance sheet goals.

By securing an expanded and long-term credit facility, as Jon mentioned, and also eliminating the sale of our shortest-term L bonds, we have created a better match between our relatively long-dated assets and our now lengthening liabilities. This matching process is a continuing goal for us.

Furthermore, the success of our preferred stock offering has added equity to the balance sheet. So although our work is not done in this regard, we ended 2016, with a stronger balance sheet and better positioning for 2017.

As we look forward, we feel that we have the financial tools, the liquidity, and the balance sheet to support the growth opportunity in all of its forms that is the secondary market for life insurance. I’ll now turn it back to Courtney for Q&A.

I’d like to start with the question regarding your mortality predictor, where the seller of the policy has to give a saliva swab. Are you getting any pushback on that?

Good afternoon, Bill. Hi, it’s Jon say this.

We really aren’t. A couple of isolated incidents where we are getting some questions; but in general, no.

We just started the practice several weeks ago. But, by and large, we are getting almost 100% compliance.

So it’s actually going quite smoothly.

Good. And then just on a – we’ve talked about the duration improving.

What is our average duration?

Hi, Bill, this is Bill Acheson. I don’t have the exact number for you, but I’m going to guess it’s probably around four years.

We have an average duration on the portfolio of about six. But like I say, I don’t have that calculation.

But with the removal of the short-term debt and then putting that 10-year facility on, it significantly lengthened. And we expect that to continue.

Yes; and the weighted cost of funds for your borrowings?

That’s around the 8.5% level, Bill, at year end.

Okay. Good.

Thank you. That was it for me.

Thanks, Bill.

Thank you. Jon, can you please share how you plan to monetize your new biomarker technology?

Yes, good afternoon, Ian. through a variety of methods that are possible.

And they are wide-ranging. We think that the technology and its many benefits that it stands to bring the insurance industry at large – from life insurance to annuities to our business – is vast; the sales process, that it stands to improve in terms of reducing the number of invasive traditional underwriting methods that consumers of insurance have to undergo; and then to the to better price the products themselves.

So we’re really, we’re working through that right now, we engaged KPMG to help us with some of that thinking. And we’re looking to get a report from them in the weeks ahead which will help us better identify what are probably the most important methods to pursue and we’ll be out there talking to folks in the marketplace to see what sort of receptivity on that commercial deployment can occur.

It’s very exciting and we’re expecting something fairly large to come of it.

Thank you. Are you still able to underwrite your policy acquisitions when the expected IR in a low-mid-teens?

Yes so the question is where are we currently buying life insurance policies in the secondary market? We have seen yield compression in the traditional life settlement brokered arena, where cases are being competitively bid.

Those are in the very low double-digits. We’ve even seen instances under that mark.

We’ve been able to maintain a pretty consistent double-digit yield on what we’re buying and clearly in our direct origination we are able to maintain better margins there as well which is what that is such an important initiative and a differentiator amongst players in the marketplace.

Thank you. Last one from me how many policies per quarter are you able to acquire without capital constraints?

Without capital constraints how many life insurance – that’s a great question. I wish I could answer that.

What I do know is that there are a significant number of policies to acquire without capital constraints. From our view the constraints have been some of the operational challenges in the messaging and protocols by which insurance the greater life insurance agents and distribution are willing to engage in the secondary market.

And from that standpoint we’ve seen a significant improvement for uptick if you will in the willingness and open-mindedness of life insurance to work with us, particularly under our platform and our Appointed Agent Program. And we are really excited about the effort that our GWG west team is undertaking.

We expect that to scale fairly large. If you read the research, they say this is $100 billion face value annual opportunity of which the industry is penetrating maybe 2% of.

So unconstrained by capital, with the right, I’ll call it, marketing tools, and messaging and means by which to transact, I think, it’s very, very significant. That said we’ve got some ways – we’ve got some work to do, but given the value proposition for the consumer and the agents that help their consumers with our products and services, we think it will be very significant.

That’s all for me. Thank you very much.

Hi Jon how are you doing?

Goo afternoon Jeff.

My question is currently, I think, you are sitting on $121 million in cash on the balance sheet. Why, with interest rates so high on that money market, why are we not paying down additional debt on the line?

That’s my first question.

Hey Jeff this is Bill Acheson, I’ll answer that question.

Hey Bill.

Hey thank you for the question. Yes we have a lot of cash at year end, which is the result of the closing of the senior facility.

And really we are going to do two things with it. One is we are going to certainly deploy it into the portfolio, as Jon described and as Ian was asking on the previous question.

But the second part of it is to retain the liquidity to do just what you describe, which is as we work through our short-term debt, we want to have the liquidity to pay that off as it comes through, and ensure that we keep a liquidity buffer while we are working the second half of our balance sheet duration-matching initiative that we are working on. So we’re going to put a lot of it to work.

But we’re going to keep a bit of it around as we churn through the remaining short-term debt that we have coming due.

Okay. What has been going on out in the marketplace as far as portfolio acquisitions?

Are you aggressively/not aggressively seeking to purchase any portfolios at this time?

Jeff we have been looking at opportunities as they’ve been coming available. In general, though, as we always historically have been really focused on I’ll call the organic origination of the assets versus tertiary portfolio acquisitions.

That said, we made a couple of small buys in 2016 and we’ll continue to look at some of those opportunities. But I would say, in general, we are not an aggressive pursuer of some of the larger portfolios that may be in the marketplace and/or have transacted.

Those seem to be dominated by institutional capital. Mostly because those sources of capital don’t have access to the origination channels.

And so they tend to really aggressively bid those portfolios when they do become available. And again, that’s as Bill and I have been talking about in our remarks – we think ultimately will be, once we begin scaling up the efforts we have been undertaking, we think that ultimately that becomes a more valuable aspect of the business, i.e., the ability to originate 100, 200, 500 policies a month; and capital becomes somewhat more commoditized

Great thanks for the time.

Thanks Jeff.

Thank you. Hi guys.

You have been mentioning the insurtech industry in your recent press releases. So I was just wondering what exactly is insurtech, and how big is it?

Good afternoon Jesse. What is insurtech?

Insurtech is a relatively new, I don’t know, acronym, phrase that three months ago I really hadn’t heard of. It’s a derivation of fintech.

So fintech has been a pretty hot concept in terms of where financial services and technology are intersecting, which are creating unique business opportunities, OnDeck, just to name something that comes off the top of my head as a fintech. So in that same vein, insurtech is the same, where, again, the insurance industry is meeting technology head-on.

Technology has been moving forward, obviously, for a number of years. But we are at an, I’ll call it, inflection point where that technology is now increasing; and the cost of, if you will, accessing it and deploying it is becoming available, so to speak, for companies, even such as GWG.

And what is occurring now is insurance companies can no longer put it off. We are seeing huge upticks, particularly in property/casualty, where the insurance contracts themselves are shorter in duration.

So you are having, let’s say, auto insurance based upon driving habits; you are having homeowners insurance based upon monitoring systems. And so in that same vein, in the life insurance industry, you are having companies such as GWG, with Dr.

Horvath’s technology, really bringing innovative advances in how one can think about insuring risk, selecting and insuring risk. So that’s really this notion of insurtech.

We love it. It’s a big movement.

And once you start studying it, you just can tell that the industry is under siege, and there is big change afoot. And really, companies such as GWG are uniquely situated because we have enough of the structure; we have enough capacity, if you will, to adopt some of these technologies.

We’re small enough to be nimble to put them into place. And we can really make significant advances in the business itself, whereas these old guard insurance companies just simply aren’t able to – while they are looking at it and thinking about, and talking about it, they just aren’t able to put it into action.

And that’s what we think is our big differentiator. And everything that we read from the experts in the field talk about pretty massive fundamental changes to these business models over time.

Great thank you.

Thank you.

Hey guys.

Good afternoon Bob.

How are you doing?

Fantastic.

Good. So three question.

First one, regarding the special dividend for the preferred, what was the thinking behind that?

Sure Bob, this is Jon. Thinking behind that was the terms in our – so we expect to close out that preferred offering in the not-too-distant future.

And we are bringing the follow-on offering, renewable secured – sorry, renewable RPS 2, which has deemed effective. And so that $150 million offering will be up and running soon.

It has slightly different terms that we wanted to be responsive to the marketplace with. And as a result, we felt as though that a special dividend to the investors in RPS 1 would bring, if there was any perceived non-parity in those two terms, in line with one another.

What’s the total capital outlay on that special dividend?

It was $250,000 Bob, this is Bill Acheson. So a pretty small amount, about $25 per $10,000 invested.

So you know my last question is going to be, again, how can you not do anything for the common shareholders?

I think you are referring to a dividend.

Yes.

I think you are not alone in what you have been advocating for. And I think from our perspective, we have been really waiting for the portfolio to begin generating more significant cash flow before we consider that.

That being said, 2016 was a breakout year for our portfolio cash flow and we’re expecting even better in 2017. So, that said, we are having a Board meeting here this week, and we will be talking about that very subject.

Okay. But from a previous answer you gave, I think you said you guys have about $120 million cash on the books.

That’s correct, yes.

So $1 a share would be about, what, $8 million?

Yes.

In that range.

In that range.

I mean, that’s not a lot. And I think that would, how can I say, do some good with the common shareholders.

Understood. We hear you, and we will take it under consideration at Board meeting.

Okay. All right, guys.

Thank you.

Thank you Bob.

Great. Thank you again for tuning into the call.

I’ll just say at the close, if you can’t tell by the press release or the remarks that Bill and I have made today, we believe that now more than ever is an exciting time to be associated with GWG. And we thank you for your continued interest and support and look forward to doing just terrific things here with this company and the opportunities that we have.

So have a great evening, make it a great year and we’ll talk to you soon. Thank you.