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MR

MSP Recovery, Inc. (LIFW)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 revenue was $5.29M (+57% YoY), driven by claims recovery service income; GAAP operating loss widened to $52.2M and net loss to $77.1M, reflecting $23.8M claims amortization and a $20.1M one-time legal share-based comp expense tied to the business combination .
  • Claims portfolio scale advanced: Paid Value of Potentially Recoverable Claims (PVPRC) reached $88.3B and Total Paid Amount $370.2B as of 6/30/22; management highlighted expanding auto-insurer data matching/settlement discussions covering ~27% of the market .
  • Liquidity at 6/30/22 was $25.0M cash; additional non-dilutive/structured capital avenues outlined include: up to $1.0B CF committed equity facility, $200M Virage ICA, and up to $250M Prudent non-recourse monetization of demand-letter proceeds (collectively ~$1.5B potential capital) -.
  • 2022 outlook: management guided to ~$992M Total Gross Recoveries for FY22 (cash received or to be received, including non-consolidated entities), while cautioning timing is inherently unpredictable; portfolio growth targets (PVPRC) were cited as exceeded by 3.2x in 2022 to date .
  • Potential stock catalysts: near-term collections from individual demand letters, further insurer data-sharing/global resolution frameworks, execution on Prudent monetization closes, and progress on litigation/arbitration recoveries under favorable Eleventh Circuit precedents (MSP v. ACE; MSP v. Metropolitan) -.

What Went Well and What Went Wrong

What Went Well

  • Portfolio scale and pipeline: PVPRC rose to $88.3B and BVPRC to $371.3B as of 6/30/22; ~27.4% of auto insurance market in data matching/settlement discussions, and multiple top auto insurers agreed to provide data and pause litigation to explore global resolution .
  • Strategic monetization path: Agreement with Prudent to monetize up to $250M of MSP’s 30% net recovery interest from demand letters at 90% of paid amount on a non-recourse basis; MSP retains excess and servicing economics (up to 18% annual return threshold) -.
  • Management conviction and legal momentum: CEO emphasized “continued asset growth sets us up for significant future revenue generation,” citing favorable Eleventh Circuit decisions and commencement of >$1.5B in billing to payers; “we have a clear line of approach to meet our recovery projections” .

What Went Wrong

  • Heavy GAAP losses and expense mix: Operating loss ($52.2M) and net loss ($77.1M) were driven by large non-cash claims amortization ($23.8M) and a one-time $20.1M legal share-based comp; interest expense also weighed ($11.0M in Q2) .
  • Sequential revenue softness: Q1 2022 total claims recovery revenue (derived) was ~$8.19M vs. $5.29M in Q2, reflecting variability in settlement timing and service revenues early in the year .
  • Liquidity reliance on structured capital: Cash was $25.0M at 6/30/22, supplemented by a $112.8M related-party PIK loan and reliance on facilities/monetization agreements to fund operations and growth while recoveries scale -.

Financial Results

Financial summary (oldest → newest):

MetricQ2 2021Q1 2022Q2 2022
Revenue ($M)$3.360 $8.185 (derived from 1H22 $13.475 – Q2 $5.290) $5.290
Operating Income (Loss) ($M)$(1.512) $(3.474) (derived from 1H22 $(55.633)$ – Q2 $(52.159)$) $(52.159)
Net Income (Loss) ($M)$(7.280) $(13.891) (derived from 1H22 $(91.015)$ – Q2 $(77.124)$) $(77.124)
Diluted EPS ($)N/A (pre-BC EPS not presented) N/A (pre/post-BC transition) $(0.09)
EBIT Margin %−45.0% (−1.512/3.360) −42.4% (−3.474/8.185) −986.4% (−52.159/5.290)
Net Income Margin %−216.7% (−7.280/3.360) −169.7% (−13.891/8.185) −1458.2% (−77.124/5.290)

Notes: Q1 2022 figures are derived from six-month totals less Q2; EPS is only presented for the post-business combination period beginning May 23, 2022 .

Revenue composition:

Revenue Components ($M)Q2 2021Q2 2022
Claims recovery income$0.000 $1.319
Claims recovery service income$3.360 $3.971
Total claims recovery (Revenue)$3.360 $5.290

Liquidity and capital resources (as of 6/30/22):

  • Cash & cash equivalents: $25.0M; related-party loan (PIK, 4%): $112.8M; claims financing obligations and notes payable PV: $222.7M; interest payable $111.3M .
  • Potential capital: up to $1.0B CF committed equity facility; $200M Virage ICA capacity; up to $250M Prudent demand-letter monetization - -.

KPIs and portfolio scale:

KPIJun 30, 2021Dec 31, 2021Mar 31, 2022Jun 30, 2022
Total Paid Amount ($B)$66.0 $364.4 $366.9 $370.2
PVPRC ($B)$14.3 $86.6 $87.3 $88.3
BVPRC ($B)$53.7 $363.2 $367.8 $371.3
Auto insurer market in data/discussions———27.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Gross Recoveries (cash received/to be received; consolidated and non-consolidated)FY 2022N/A (no prior formal guide)~ $992M Introduced
Portfolio PVPRC growth vs targetFY 2022N/A“Exceeded target … by 3.2x” Positive update

Note: Subsequent update (Q3 2022) reiterated ~$992M but shifted substantial portion of timing into 2023 due to litigation delays; not part of Q2 issuance but relevant for trajectory assessment .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q2 2022)Trend
Technology/LifeWalletLifeWallet launched Jan 10, 2022 to enable point-of-care analytics and records (part of “Chase to Pay”) .Continued build-out; partnerships (e.g., SeguriTech in Mexico) and Tokenology blockchain initiative with Polygon to target fraud/abuse .Broadening use-cases and international data capabilities.
Monetization strategyVirage ICA established (Sept 2021) enabling transactions up to $3B of claims interests .New Prudent non-recourse monetization up to $250M on demand letters; CF $1B committed equity facility detailed - .More channels to convert portfolio to cash.
Legal/regulatoryEleventh Circuit precedents supportive for MAOs’ rights (ACE, Metropolitan) .Leveraging precedents; commenced billing >$1.5B to payers; warned that RAMP Act repeal risk could affect double damages .Legal tailwinds with policy risk disclosure.
Payer engagementGrowing assignor base; data matching expanding through 2021 -.27.4% auto market in data/settlement talks; multiple top insurers paused litigation to explore global framework .Increasing data access and resolution pathways.
Ops/financial controlsSPAC-era control weaknesses disclosed previously -.New CFO appointed (June 24, 2022) as principal financial officer .Strengthening finance leadership; remediation ongoing.

Management Commentary

  • CEO perspective: “Our continued asset growth sets us up for significant future revenue generation… enabling MSP to recover improperly paid claims while also deploying revolutionary technology…” (John H. Ruiz) .
  • CLO perspective: “We have already exceeded projections for many of the Company's key performance indicators… we will continue to see increased recoveries as our litigation process continues against multiple parties.” (Frank C. Quesada) .
  • Monetization and billing push: “Cash flows from operations is one of MSPR’s main priorities… we have commenced billing over $1.5 billion to payers… agreements with Prudent and Virage … MSPR has begun collecting” (Ruiz) .

Q&A Highlights

  • No earnings call transcript was available in the document set. The company hosted a call on Aug 11, 2022, but a transcript is not present in this corpus; Q&A details are therefore unavailable .

Estimates Context

  • Consensus estimates: We attempted to retrieve S&P Global consensus for Q2 2022 (EPS, revenue), but data was unavailable due to missing SPGI/CIQ mapping for ticker LIFW during this period. As a result, comparisons vs Wall Street consensus are not available.
  • Implication: Investors should anchor on reported results and management’s qualitative guidance until consensus coverage is established.

Key Takeaways for Investors

  • Scale is the story; cash timing is the risk: A $88.3B PVPRC portfolio offers substantial embedded optionality, but GAAP P&L will be volatile as recoveries (and any double-damages) realize over time .
  • Multiple monetization avenues reduce funding risk: Prudent non-recourse monetization, CF committed equity, and Virage capacity provide pathways to bridge to operating cash inflows without relying solely on traditional equity issuance -.
  • Near-term catalysts: (1) Collections from the individual demand-letter program; (2) insurer data-sharing/global settlement frameworks; (3) initial Prudent closings (management anticipated ~$10M first close in Q3) -.
  • Watch expense normalization vs non-cash items: Large non-cash claims amortization and one-time legal share-based comp skew GAAP loss; non-GAAP adjusted operating loss was $(8.3)M for Q2, evidencing underlying opex scale before amortization .
  • Legal outcomes matter: Continued favorable case law in the Eleventh Circuit plus the status of the RAMP Act will shape attainable recovery multiples and timing; any adverse legislative change would be a key downside risk .
  • Execution proof-points: Evidence of sustained quarterly recoveries, increased recovery multiples, and conversion of insurer data matches into settlements are the KPIs most likely to move the stock near-term .

Supporting documents and data sources: Q2 2022 earnings 8-K and press release, 10-Q for the period ended 6/30/22, and related 8-K disclosures - - - -.