GWG Holdings, Inc.
Q4 2017 Earnings Call Transcript

Published: 30 Mar 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 Full-Year 2017 GWG Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Dan Callahan, Director of Communications. You may begin.

[Dan Callahan:]

Thank you, and good afternoon, everyone. Welcome to the GWG Holdings fourth quarter and full-year 2017 earnings call and webcast that includes slides that illustrate the information we will be discussing today. On the call with me today are Jon Sabes, our Chairman and CEO; and Bill Acheson, Chief Financial Officer. Following our remarks, we'll be happy to take your questions. You will have to call in, in order to ask a question live. Some statements made on the call today, along with any projected financial results including forward-looking statements, are subject to certain risks and uncertainties. Any forward-looking statements made on the 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'll hear references to various non-GAAP financial measures, which we believe enhance understanding of our performance. Reconciliation of the non-GAAP numbers to their 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 as a webcast. 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.

[Jon Sabes:]

Thanks Dan, and good afternoon, everyone. I am Jon Sabes, CEO, Chairman and Co-Founder of GWG. Appreciate everyone tuning in today or listening via recording. Again, this is for the full-year 2017 and the fourth quarter. I’d like to start every presentation with the conversation about purpose. And there it is, purpose. Purpose is something is a – is the starting point of our achievement. And this year marks a transition point in terms of what our purposes as a Company. That purpose is really moving forward to a true industry innovator for the life insurance industry. I have been talking for years now about the secondary market of life insurance and that is then our true purpose. It’s what we found in this company on and that purpose has then to provide investors yield from non-correlated assets to provide value to seniors only life insurance and provide valuable products and services to financial advisors. That core purpose remains our business today. Yet we are expanding our business as we look to the primary life insurance market and the application of advanced technologies and we will talk more specifically about what it is we are doing in that regard. And then finally, we are expanding our business with a greater, larger alternative asset portfolio that is the Beneficient transaction and I'll touch on that as well. So, as to the secondary market of life insurance, we’ve reached a pivotal time in our business. We’ve achieved our definite major purpose of acquiring a large diversified portfolio of life insurance assets. We set that as our goal, when we started out on our business many years ago. We wanted a large diversified portfolio of assets in order to ensure we could deliver the non-correlated yield we expected to the investors who invested with us. A large diversified portfolio of life insurance assets helps ensure our expected yield or actually able to meet our expected yields. We ended the year with $1.6 billion of life insurance policy benefits. The average age of almost 82 years, almost seven years in life expectancy and we're just in reach of 1,000 lives. Over the years, I've been often asked the question on how many life insurance policies Jon you need to get the expected – the actual yield to meet your expected? And I've always answered that question with more is better. But that's said, 1,000 lives are just they're about is really the point at which we believe is an area that we're reaching a significant size to achieve our stated goal. And in acquiring this portfolio, we've also achieved our other purpose, which is to deliver value to the consumers of life insurance. The total cost basis in this portfolio is $644 million that represents just over $1 billion in gross spread to pay the remaining premiums in the portfolio and deliver non-correlated yields to our investors and make money for our common shareholders. In acquiring this portfolio, we've paid out over $477 million to seniors. The cash surrender value in these policies just $35 million. That's $441 million of excess value that we delivered to the seniors we've had the honor in serving. In addition, the policy owners we work with have retained over $24 million of insurance policy benefits without the necessity to pay an additional premium. We’re fiercely proud of delivering the goals that we set for ourselves in the secondary market and we remain committed to this industry. Our focus going forward as we've talked about is direct origination. This market stands to grow. In 2016, it was estimated that the industry purchased $1.7 billion in face value of benefits from consumers and stands to grow 100 times if consumers knew of the opportunity. We refer to this as direct origination and expanding that market and by the end of this year. We do expect that the only life insurance policies we buy will be those we have acquire 100% directly from the life insurance distribution hierarchy we serve. We've been working with independent marketing organizations BGAs in agents for over a year now and we've had tremendous success with the IMOs and the BGAs we've been talking too. They're receiving our message of the value that our products and services bring to their distribution, their agents and their clients. We've received thousands of data on policies from BGAs and we've begun to work with engaging those agents to turn those policies opportunities into the value of that the policies can deliver. However, as I've been saying for now two quarters, I've expected to be able to deliver a very linear approach and how many policies we would receive from our BGA network and how many of those would translate into origination opportunities and we have not yet achieved that goal. As a result we restructured our agent sales operations. Matt Paine is now leading that group. We've brought in that team that was our call center in Las Vegas into Minneapolis and we're working to reengage our agents in a way that leads to the originations that we believe is inside this distribution hierarchy. In 2018, we expect to further productize our service offerings with what we call a life exchange annuity. We are working with a leading life and annuity carrier to create a life exchange annuity that we expect to offer in the marketplace in 2018. Our life exchange annuity means that a consumer can seamlessly exchange their life insurance policy for the exchange value into an immediate annuity. We believe this is the final piece in how to communicate the value proposition of the secondary market to agents and consumers. We expect again by the end of this year 100% of the policies we buy will be direct from this insurance hierarchy distribution. Now let me switch gears on a new purpose that I've been talking about for over a year. And that purpose is to bring the primary life insurance market, innovative tools and products based upon advanced technologies. This phrase that describes this is called Insurtech and many are writing about a transformation of the business of insurance because of advanced technologies like the one we licensed from UCLA. This year, our 10-K makes a tremendous step forward in describing this business in greater detail. We described the difference between epigenetics and genetics. The science of epigenetics offers an amazing insight into the health and wellness of individuals by looking at biology at a molecular level. Epigenetics can accurately reflect the current state and habits and environment of an individual. As most of you know, we licensed and our mortality, all-cause mortality test from UCLA patent pending. This test provides for an all-cause hazard ratio for an individual mortality curve. We think the mortality test will be an important underwriting factor for life insurance going forward. However, an all-cause mortality test is a big idea, and therefore, we focused on some more simpler, easier to understand ideas, such as a better smoking tests. I am proud to announce that we have filed patent pending for our own proprietary smoking tests that will enable life insurance companies to test their insurance applicants for their smoking habits whether an individual like current smoker, a former smoker or a never smoker and how much tobacco have they smoked. Maybe you are like me or maybe you are not, but I was surprised to learn that the current smoking test used by the life insurance industry is a highly inaccurate test, and or I should say highly unreliable test. And the way that this information is usually tested is through the collection of blood or urine. Our smoking test is saliva based something that the entire global life insurance industry is desperately seeking to get away from i.e. blood or urine collection. In addition to our smoking test, we filed for a patent for a proprietary alcohol consumption test. This test will determine if an individual is a heavy, moderate, light or never consumer of alcohol. Again, the industries current way in which to underwrite against alcohol consumption is through self reporting. How many drinks do you have for a week? This alcohol test for the first time will give insurance underwriters insight into the alcohol consumption of their insurance applicants and it has been shown that heavy alcohol consumption leads to a significant increased risk or mortality. These tests and other aspects of our business are underway in different R&D and pilot studies. We are working with the leaders, global leaders in tobacco and alcohol research to prove the efficacy and validation of our epigenetic signatures and a large commercial trial with a primary insurance carrier to test the validity of our signatures. We expect to get these results sometime in 2018 and be in a full commercialization mode by the end of the year. Our wholly-owned subsidiary Life Epigenetics Inc., owns this technology and we are excited for many additional tests and predictors to develop for the industry. The regulatory market in which we are working in is good. We scanned the industry dramatically and this type of testing genetic or epigenetic is permitted, providing you get consumer authorization. So the environment for the type of testing that we are doing looks extraordinarily good and the results and the accuracy that we think our test will provide are leaps and bounds better than what the industry is accustomed to. Finally, we are looking at additional ways to apply this advanced technology in an innovative business model for the broader market. How do we get this technology deeper inside the products themselves? In that regard, you might think of molecular biology and the business models that are developing around it to span from entertainment to health science. In the entertainment area, we see Ancestry.com, 23andMe that moves into Health & Wellness, Helix, a startup from Alumina as well as in the Health Science area Human Longevity, Inc., and Wamberg Genomic Associates who is working broadly with the insurance industry. We see an opportunity to place the brand that helps translate the technical health science into value-added products and services directly for the consumer. And we think we can do that in conjunction with bringing some of the entertainment and health and wellness aspects to the consumer, things that the insurance industry is desperate to create in order to increase the persistency and value add at the products that they sell. By launching this brand, we think our Company can be at the highest end of the Insurtech ladder, which includes Ladder Life, no pun intended, Lemonade, Oscar Health, and Health I.Q. We look forward to doing this in 2018 and our desired business model of choice right now is through the creation of a digital MGA. This digital MGA will announce that the future of life insurance is here. It will offer individuals and small groups to apply and use the benefits of our advanced technology to get the most affordable, efficient health and wellness reports and life insurance prices available because they don't smoke or they don't drink. This is where we're at with Insurtech and we look forward to bringing all of these efforts forward further in 2018. In terms of the Beneficient transaction this is a strategic relationship that we announced at the beginning of the year. This transaction is on track to close in April and provides us with a unique opportunity to expand our balance sheet with a diversified set of alternative assets that will provide us with income, cash flow and diversification that only strengthens our overall company. We are doing this with an experienced management team that has a successful track record working with institutionally managed alternative assets. The transaction provides for an increase in our common equity and is accretive to book value. There is no change of control and there is no change to the insurance strategies that we are engaged in. In fact, Beneficient found us because they sought to be invested in the life insurance alternative asset class. And as they've learned about our Insurtech initiative they are only more excited about their partner. And finally, we are working with Beneficient to look at distributing their liquidity products that they seek to provide to the investors in illiquid alternatives to the broker dealers and through the financial advisors we've had the benefit of working with and serving as we've sought to build our Company. In total, 2017 is a transitional year for us where we come out of it. We remained committed to the secondary market of life insurance and the initiatives we have underway with an exciting prospect in Insurtech with unrivaled technology, and the Beneficient transaction that provides unparalleled growth for our balance sheet and diversification of our assets and earnings that will receive as this transaction works its way through our balance sheet. Now I'm going to turn the call over to Bill Acheson where he'll take us through the detailed financials that we've reported. Bill?

[William Acheson:]

Thanks Jon. Thanks for everyone's attendance. So I am going to start out before we get into the nitty-gritty, I’ll start out by talking about some financial accomplishments that we had during the year that I think are important particularly given our GAAP results that we will be talking about. These accomplishments really set us up for the long-term and our things we’ve been working on for years and continue to do so. Starting off at the top with really our portfolio with our realized record amount of benefits both base amounts $65 million this year as well as matured policies, the number of them over twice last year. Consistent with that is consistent benefits what we’ve seen now six quarters in a row where the benefits on trailing 12-month basis exceed premiums and we expect that to continue. This is all part of what Jon described as we get up to that 1,000 policy market, you're going to start to see these and we believe they’re occurring. You probably know we amended our senior credit facility in the third quarter, giving us more headroom and importantly giving us 10 years committed financing, so we can pay the premiums on virtually all of the portfolio that we ended the quarter with and for those who had all the business or would listen to us having the premiums paid and keeping that portfolio in force is the number one job that supports a lot of our other initiatives on the balance sheet. It also allows us to manage our debt, our duration, it's also important to manage – to match the duration of the debt with the liability – with the asset that’s especially important when you have a very long-term asset like the life insurance portfolio and so we've accomplished that as well. We redeemed again in the third quarter – early fourth quarter, our Series A Preferred Stock, which was very diluted to the common stock and carry a 10% dividend. So we took out a dilution in lower cost of funds and gave our investors a fantastic return. What I forgot to put here was also we did a similar reduction with our Series I, which was a higher yielding private debt issue that we had done years ago. We also cleaned that up in the third quarter. We just as of this month sold out our second redeemable preferred stock offering called our Series 2 redeemable preferred stock. We raised $150 million and that offering is now closed, which we really are happy about how that’s sold and we take that as a very strong interest in GWG and what we're doing now and what we're doing in the future. We reported record stockholder equity on the back of that raise further de-risking our balance sheet, which again is a long-term project of ours to create a balance sheet that’s stable and well capitalized to support a very large growing balance sheet. We reached scale as Jon described on our – nearly a 1,000 lives, so we have that in insight. I will talk about our portfolio in a minute, but suffice is to say we’re very happy and proud of it. We also maintain our pricing discipline this year, which was very hard to do in the broker space and we'll talk a little bit more about that and we've not kept our IRRs around 14% target. And finally, we maintained a very high liquidity position, perhaps too high from an income statement perspective, but it's consistent with our safety first approach to how we’re managing our balance sheet. So we are very happy about a lot of the underlying things that happened in 2017, although not necessarily manifest in our GAAP result, which on this slide, we shall walk through. So this year, we reported a net loss to common shareholders of $33 million or about $5.72 a share. That's certainly we’re shooting for now over product, but there are several things to consider when you think about the number. We had several one-time items that will walk through and we also had some other items that are not one-time but occurred in greater frequency than we believe they're going to be in 2018. So let's just talk about revenue real quickly. I’ve actually our revenue was down year-on-year, which is very unusual and that really came from four different places. On the policy acquisition side as I mentioned, we bought fewer policies and we did so one purpose. We don't like to be yields and we don't like some of the underwriting that we've see. We don't see a reason to buy policies that low yield that aren't going to pay and resulted in a lower income statement as we rely on some of that mark-to-market income when we're growing faster. We had a record amount of policy maturities, which is great. But we had a lower percentage of gain on those maturities and that will move around particularly when you're still in a relatively new period of maturity growth that will move around quarter-to-quarter and this quarter was – in the fourth quarter was against us and for the year. Our portfolio discount rate decline, which was a benefit to our P&L, basically due to our – the way we set it, which is reflective of the yields in the competition in the marketplace. But offset - more than offset by a life expectancy updates, which I have a separate slide on, but that was a $20 million pretax charge. So that item – in addition to Items 1 and 3, we’re really big negatives on our 2017 revenue. Looking to the expense side, there's a couple one-timers and there as well, which is only the MCA line, but that's not a huge one. That's a business that we’re exiting and we had some loan impairment, which is now fully reserved for on the balance sheet, it's a relatively small item. Bigger in there is really going to be our interest expense, which is really driven by higher debt balances. In the fourth quarter driven also by an increase in our interest rate on our credit facility, our senior facility that’s driven off of LIBOR, which is risen a reasonable amount here in the past six months and also this excess liquidity. We had a lot of balances sitting around that were not being productive and they were attracting interest expense, something we don't want to repeat in 2018, but there's a good reason for it. So our expense line in addition to some modest increases in G&A that we will be addressing in 2018 led to a pre-tax income or loss of $22 million. Now a couple pretty good sized one timers as we go down on the left column here, we took a $7 million charge for reserving against our deferred tax asset, which is essentially to say some of our net operating loss carryforwards by the accounting guidance are not going to be realized or at least a substantial doubt as to whether they will be realized and so we had to put a valuation reserve against that at $7 million. And we also had to be called a Series A redemption, which was a good idea and a good thing, but that carried with it $2.1 million redemption premium that we had to pay that will not be recurring. So go all the way down that gets you to your $33 million and your $5.72 a share. Now if you look at the effects of the true one timers what you're over now to the right, you essentially had about a $11 million, $10.5 million after-tax of non-recurring items which gets you to about $23 million of net loss to common shareholders in just under $4 a share. Now neither of those numbers – we did not adjust those numbers for the life expectancies as we consider them to be a part of the business. Although, I'll give you some perspective on what we're thinking about going forward. So not what we were shooting for, but you do need to consider some of these one timers to get a little better perspective on the GAAP treatment of the business, which has never been super kind to us at this stage of our growth, which is why we also then report non-GAAP results, which this year was $24.6 million this is now for the full-year. That compares to just around $30 million last year, a lot of that – that difference also has to do with the only adjustments, but recall that in the graph that the non-GAAP is really trying to measure or try to recognize the spread that Jon referred to between the cost basis of the $600 million odd and that $1.7 billion of face amount of benefit. So we did have as expected a GAAP profit for – non-GAAP profit for 2017. So let's take a little closer look here at these life expectancy and for those of you there maybe haven't followed us or don't know about it, essentially this is a reunderwriting of individuals in the portfolio and it's required by our senior lender and GWG also has a policy of doing this periodically to keep the life expectancy fresh. And so what happens is you basically reunderwrite the individual, all the way from medical records through the analysis and then all the way to ordering two independent life expectancy evaluations by third-party providers much like we would do when pricing a policy that's a $1 million or greater. Now the income statement in fact is policy specifics, you don't really know until the results come back. What's going to happen, but I can tell you that there are typically negative in the whole. There is occasions where you'll have individual policies that will become more valuable, but broadly when you update they become negative. Not a super amount in each policy, but they tend to be negative. And this is really not unexpected for us as we think about how you underwrite life insurance. You know you're going to have early maturities and we're going to have very high IRRs, which we have – we’ve already realized. We know there's going to be some that are at or near, our expectation and we also know there is going to be some that are much longer and have negative yields and we roll all that together you're going to get the hopefully the actuarial with the yield that we're projecting in total. And so just the fact that these individuals are still alive to be reunderwritten will tell you that more than likely you're going to end up with the P&L adjustment to the negative, which is what happened now in 2017 as you can see with the graph in the white bars, we updated over twice as many as we did in 2016 and this is really largely because of two factors. Number one, it takes a long time to get these medical records, particularly now with medical offices and sometimes you got to get new [indiscernible] signed. There's a lot of work involved with it and so it can stretch out over a long period of time. And also in particular, in our industry, one of our main providers, third-party providers of these evaluations had been backlogged for the last 18 months and they finally caught up in 2017. So the result is we had a concentration of life expectancy updates resulting in $20 million pre-tax charge that we don't believe is going to happen in the same thing in 2018. We have far fewer that are scheduled to be updated. Now again, we considered these to be recurring items, so we did not try to adjust our P&L for them, but it's instructive for you to understand that we think the magnitude in 2017 is much greater than it will be in 2018. So we will move on from that topic and we will talk a little bit about the balance sheet. You've seen this one before, but we've continued to grow the balance sheet. The BEN transaction promises to grow at even further and add some diversification to it, as Jon described. We reported a record amount of stockholders equity and with the completion of the RPS 2 offering, we've kind of completed another step in our derisking of the balance sheet. We've got a ways to go, but we envisioned this two years ago, when we started with our preferred stock offering and we've accomplished what we set out to be in that regard and we think we're now well positioned particularly with the BEN transaction to move forward with our balance sheet. Here is our liquidity position. As I mentioned before, that's higher than we need. Although, we’ve deployed a safety first approach here, we did not think it was a good idea to go buy low yielding questionably underwritten life insurance policies in the secondary market. And as I mentioned before, we see everything that’s out there. We know what's good and what's not. You can't really fool us. And so we intentionally were very cautious on our bias. Again, at the same time, our story and our products were very popular within the broker dealers and we raised a lot of money. So we're left with excess liquidity, which given the alternative I guess is better than deficient liquidity, but 2018 is a year where we need to deploy that unless it cost us additional opportunity cost in earning assets and income the way it did in 2018. So it's not the worst problem to have, but one that needs to be fixed by us going forward. Now speaking of taking a closer look at the portfolio, we’ll zip through this here pretty quickly – sorry, this is the IBD, so this is our retail sales force, strong interest on the left graph record number of advisors, record number of IBDs, independent broker dealers selling our products. They love the RPS 2 offering that sold out this month as I mentioned. To the right, you can just see the capital raise split between L-Bonds in the white, and in the gold, the redeemable preferred stock. So we're very happy with those results. We have a diversified and flexible funding base and we're self-reliant. So we can raise our own capital and pursuit of our own goals, which is something that is unique in the market. So we're gratified with our sales effort and the support that we get from our IBDs and from our financial advisors. Taking a look at the portfolio, here we go. Here it is. Here is the portfolio, as I mentioned you can see. In the second quarter 2016, we've been a little careful with what we've been buying and we haven’t been buying as much. And that's a good thing to do, as Jon mentioned, we really view direct origination as the opportunity and the priority. And that's something that we're driving very hard to do. And you can see our direct results in the white versus the broker results in the gold. And basically the flat performance over the past few quarters has been our retooling effort that Jon described. And although we have optimism, we also have work to do on that front and we hope to report better results moving forward. On the right graph just simply shows you kind of lives in face and as we near that 1,000 mark spot. We are very happy with that. It continues to age on the left side, just shows you’re aging, half of it’s over 85 years of age. We have about 150 million actually aged 90 or greater and I've been showing this slide for four years and it might be four more years. But it's coming and we're starting to see the beginnings of it and we're confident that’s going to continue. And by looking at the profile and by the impairment profile, which I don't have on here, we are pretty comfortable with its performance going forward and it is, really is a good long-term anchored asset for GWG. On the right hand side, just our cash flows and you can see a record amount in the right and then we just compare that to the goal which is the premiums that were required to be paid over a trailing 12 months period. And so we've left the days of kind of inconsistent coverage and we're six in a row and I expect that to continue. So we're very happy with where that portfolio sits today and what we know in the marketplace and know what other people are buying particularly funds and other people that have a management fee interest and maybe conflicts of interest that don't exist here. We think our portfolio is by far the best in the market there is some objective evidence to support that, I'm not going to share it here today, but suffice to say we're very happy with that portfolio as Jon described. So as we – as really we wrap up our look on 2017 certainly from a financial perspective, it was the difficulty year from a GAAP perspective. Although there are several one-time charges and other items in there that do make a difference and reported numbers. But we made a lot of progress with the underlying components and infrastructure to enable our long-term success. The BEN transaction as Jon mentioned is going to be transformational for us and the opportunities that we have with Insurtech and the disruption that we're trying to bring the life insurance industry at large is real and it's a real equity potential. And so when we step back and look at our Company, we see a very large high quality, well constructed, aging portfolio like zero coupon bound that’s going to pay us $1.5 billion in the next 10 or 15 years. In the middle of that, these have BEN transaction and not only is going to provide a common equity and a current earning source, which has really something been missing from GWG as we’ve been building this portfolio. So not only going to give us earnings diversification and common equity, it also gives us a partner that will give us a potential opportunity for us to leverage some of our infrastructure and our costs particularly as it relates to our independent broker dealer, marketing and sales force. And so if we can help BEN become better then obviously we're going to be succeeding virtue by – via our investment in them. And finally, you have the high growth, high equity Insurtech opportunities. So we really see a balance – more balance company going forward that's bigger and add scale and we're optimistic about where we're headed. So I'm going to turn the call back over to [Gigi] for a brief question-and-answer.

[Operator:]

[Operator Instructions] Our first question is from William Gibson from ROTH Capital Partners. Your line is now open.

[William Gibson:]

Thank you. Jon, you addressed the disappointing results and the direct originations this year brought the team to Minneapolis. But why did we have less in terms of number of policies in 2017 versus a year earlier? I mean I would have thought it would have doubled not been lower?

[Jon Sabes:]

Hi, Bill. Good afternoon. Again I think what we are seeing as a lot of competition in the broker channel that we compete against other buyers, we've seen a lot of yield compression. We haven't chased those yields. We've maintained discipline and some of the other source areas in which we source and buy life insurance. So while we've got the capital, we want to put it to work. We just weren't willing to chase the yield. In terms of our direct origination, we've been just hard at work. We had to retool and restructure while we're down in our call center in Las Vegas and then ultimately kind of just could not get that to work at the level in efficiency that we believe needs to happen. So we had to again pull that up. So kind of all-in-all, I’d say disappointing in terms of where we're at what direct origination, but persistency is the name of the game here. We're convinced that the opportunity is there. We can – it’s very frustrating because we can almost feel it. But we just had kind of the last pieces to put into place and really to actualize that opportunity. So we're convinced that it's going to be there. We're going to deliver on it. I'm just disappointed because we literally had tens of thousands of policies and data on them attached to agents, but for one reason or another we didn't translate those opportunities into origination. So we're hard at work to make that happen.

[William Gibson:]

And that leads to the follow-up, which is you've got this liquidity and Bill talked, hey we had to do a better job of getting that to work this year. But I guess I didn't quite – do you think that comes through the channels you're already talking about that you can put that money to work?

[William Acheson:]

We'll put the money to work or will we return it to investors. I mean at the end of the day, but we're going to maintain the discipline on what it is we're going to – what it is we're going to buy. We've got a great asset and we're just not willing to kind of chase the market so to speak and remain committed to just pure origination the way we see that the business should be run. So it's sort of a high class problem right now. Unfortunately it's burning a hole in our P&L and we're going to do something about that this year. In addition and we'll restructure our ops accordingly to properly reflect that.

[William Gibson:]

Okay. I actually applaud that approach and I assume there's – that's it for preferred sales for now on the redeemable preferred or is that possible of the new offering?

[Jon Sabes:]

That's it for now. We don't have anything on the table. So we're well capitalized. We want to see the BEN transaction close and that we expect as part of that closing will be a significant increase to our common equity and we want to allow that to settle out before we think further on the capitalization.

[William Gibson:]

Thank you. And then one last question and this is getting to the alcohol and smoking epigenetic test. Is the plan to do more than just use that internally? Is that a license to other insurance companies or a sale or how do you market that?

[Jon Sabes:]

Yes. Thank you. We're really excited about those tests. I have been somewhat alluding to them for several quarters. We basically plan to extend testing and make that available to other insurance companies that we expect that these tests will become the new gold standard for measuring tobacco usage. It's just been amazing to learn more about the current test which uses cotinine. Cotinine clears the bloodstream in about 16 hours. Our test will won’t clear in 16 hours. So we think we can be cost competitive not only so we can be competitive in the terms of the cost with the current test, but the accuracy that we will be able to provide and the bifurcation of tobacco use is just absolutely unheard of in the industry. And same those for alcohol, it’s a same saliva. So the model is to basically sell tests much like other testing services provider will probably work with and through some of the other major testing service providers as effectively resellers. So that's kind of where we're going with that and we were highly optimistic on where that will land for the industry. And then we're looking broader and beyond and that's where we start to think kind of how can we kind of more aggressively take advantage of the power of our tests economically or otherwise and also avail consumers to the added benefit that they can avail themselves to.

[William Gibson:]

Thank you. And I want to give you my marketing $0.02 if you are to contact the Minnesota Vikings or the other pro-teams there and offer the test to them as they look at new candidates?

[Jon Sabes:]

It doesn’t test for concussions yet, but we'll look for that one.

[William Gibson:]

Thank you.

[Jon Sabes:]

Thanks. End of Q&A

[Operator:]

Thank you. [Operator Instructions] At this time, I am showing no further questions. I will like to turn the call back over to Jon Sabes, Chief Executive Officer for closing remarks.

[Jon Sabes:]

Again, thank you everyone for your interest and attention in GWG and the initiatives we have underway. Again, I think as Bill accurately stated while the GAAP results don’t necessarily or something that we’re excited about this year. We also think that they are necessarily reflective of the underlying economics or of the business as well as the opportunity will be hard at work with respect to the initiatives underway. We’re expecting a very exciting year for GWG in 2018. Thank you, again.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect.