SWK Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 16, 2024

There are 4 speakers on the call.

Operator

Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ira Gostin, Investor Relations.

Operator

Sir, the floor is yours.

Speaker 1

Good morning, everyone, and thank you for joining the SWK Holdings' Q2 2024 Financial and Corporate Results Call. Yesterday, we issued a press release detailing our financial results for the 3 months ending June 30, 2024. The press release can be found on the Investor Relations section of our website at swkhold.com under the News Release section. Before today's call, I would like to make the following statement regarding forward looking statements. Today, we will be making certain forward looking statements about future expectations, plans, events and circumstances, including statements about our strategy, future operations and our expectations regarding our capital allocation and cash resources.

Speaker 1

These statements are based on our current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those detailed in the Risk Factors section of the SWK Holdings 10 ks filed with the SEC and other filings we make with the SEC from time to time. SWK Holdings disclaims any obligation to update information contained in these forward looking statements whether as a result of new information, future events or otherwise. Joining me from SWK Holdings on today's call is Jody Saggs, President and CEO, who will provide an update on SWK's Q2 corporate and financial results. And Jody, it's all yours.

Speaker 1

Go ahead, please.

Speaker 2

Thank you, Ira, and thanks everyone for joining our Q2 conference call. First, I'd like to welcome our new CFO, Adam Rice. Adam joins SWK from a private credit platform and brings valuable loan and mortgage accounting and operational experience to SWK. During these 1st couple of months, Adam has familiarized himself with our financing structures, assisted our Controller Courtney and our consultants with the 2Q accounting reporting and started building a relationship with our partner banks. Adam will take a leading role with the financial reporting starting in 3Q and you will hear from him then.

Speaker 2

Welcome, Adam. SMBK's core business is financing innovative commercial stage life science product companies through 1st lien term loans and royalties with a focus on $5,000,000 to $25,000,000 investments. During the Q2, our core finance segment generated $6,500,000 of adjusted non GAAP net income. The net finance receivables portfolio increased 19% year over year to 267,000,000 dollars and the portfolio effective yield improved 10 basis points year over year and 40 bps sequentially to 14.6%. Segment revenue increased 15% year over year to $10,700,000 as receivables growth was accompanied by a 15.4% realized yield.

Speaker 2

Q2 2024 financial segment results were negatively impacted by a net $4,100,000 of impairments taken to 2 non accrual borrowers and positively impacted by a $2,400,000 increase in the carrying value of our ILUVIEN royalty as well as a $700,000 gain on the conversion of AOT private warrants to common stock, which was triggered by the company listing on the London AIM exchange. As a reminder, STDK carries private warrants at 0 on our books. During the Q2, we advanced $7,000,000 to existing performing borrowers. And in August, we closed on an up to $11,000,000 royalty monetization with Relieve Therapeutics. We are pursuing loans and royalties to multiple innovative life science companies and have the capital available to close these opportunities.

Speaker 2

Our Antares division is ramping work with our strategic partner as evidenced by segment revenue nearly tripling sequentially to $800,000 Under the strategic agreement, Antares is entitled to receive low single digit 1,000,000 minimum guaranteed revenue payments for each of the 6 month periods. For the 1st 6 months of the year, we agreed that this requirement could be satisfied by bookings received at the end of the quarter. These bookings were deferred and the revenue will be realized over the next few quarters. Our partner made the full cash payment after quarter close, satisfying the minimum guaranteed revenue payment requirement for the period. As a reminder, the minimum guaranteed revenue payment is intended to help fund the operating costs in the tariffs as revenue builds.

Speaker 2

Are pleased with the progress in tariffs is making as evidenced by increased bookings and a growing pipeline of CDMO projects. Turning to our share repurchase program. We bought back 54,667 shares at a total cost of $1,000,000 during the Q2. Since quarter close, we have repurchased an additional 155,000 shares for a total cost of $2,600,000 As of June 30, 2024, our GAAP book value per share was 22 point $7.5 a 4% increase compared to $21.79 as of June 30, 2023. Non GAAP tangible financing book value per share totaled $20.17 a 6% increase compared to $18.95 as of June 30, 2023.

Speaker 2

During the quarter, we wrote off the remaining value for potential future milestone and royalty payments associated with the Enteris Pettelligent license to C. A. R. Therapeutics. This was in response to KARA's decision to discontinue the clinical program for the underlying Oral KORSUVA program.

Speaker 2

Post this write off, the Enteris segment has a book value of approximately $5,000,000 which consists almost entirely of PP and E. In summary, during 2Q, Q2 'four, our financial segment had solid results, which were negatively impacted by impairments at 2 borrowers. We are pursuing multiple financing opportunities and are working to close additional deals by year end. Our Chios business is seeing growth in revenue and bookings with the assistance of our partner and is positioned to be cash flow breakeven or better through the strategic partnership period. With that, let's open up the line to questions.

Operator

Thank you. At this time, we'll be conducting a question and answer Thank you. We have a question from Scott Jensen, who is a Private Investor. Your line is live.

Speaker 3

Good morning, Jody. Hi, guys.

Speaker 2

Nice quarter.

Speaker 3

I'm happy you took the Cara upfront charge and it's nice to see within 10Q the up writing up of the ILUVIEN. It's kind of nice to see one go the other direction. I guess my question is kind of twofold. One is what is the market looking like to you out there? And then how do you deal with the competition that's coming from larger players, bigger institutions, all kind of coming out of different areas that they maybe used to stay in their lane and now they're kind of coming in all over the lending map?

Speaker 3

Like and so what do you see out there as far as that?

Speaker 2

Yes. Good question. So if you look at our pipeline this year, we've our pipeline is at an all time high. We've had more inflow at the top of the pipeline. And I think part of that is due to Peter Bloomberg, Head of Business Development has done a really good job and has started hit his stride.

Speaker 2

So in the funnel, it's been good. Our close

Speaker 3

rate has been down.

Speaker 2

It's been, I think perhaps the lowest it's been the past few years. And I mean, what we're seeing is, I wouldn't say we're getting necessarily beat out by sort of the traditional players, but a lot of it's been things like equity, those have fallen through. There certainly is competition in the royalty space and some others. But I think a lot of it has been sort of discrete one offs. In terms of well, and just to state another sort of statement of fact, you can look at the public competitors, the BDCs in our space, Their bookings were down, flat to down kind of through the 1st 6 months of the year, many of them, the guys that are our size.

Speaker 2

And they talked about less deal flow in kind of that sponsor backed sort of tier A space. So there are a lot of people out there looking to deploy capital. What we have to do, I think, is find unique opportunities. I think this would leave royalty being a good example where it's off the run. J.

Speaker 2

D, who's our Director of Underwriting, did a fantastic job of that one. Kind of 3 unique royalties and some pretty hairy structuring, different geographies. So we're going to have to be creative. We're going to have to find unique opportunities. We've got to go hustle.

Speaker 2

We've got to have excellent customer service. We've got to lean on the people we've worked with. We certainly can't just count on banks to call us and give us nice $20,000,000 sponsor back deals. We'll never put money to work that way. So it's going to be it's going to be be hustling and finding ways to be helpful to folks.

Speaker 3

Okay. And another question. As you said in your opening statements about the buyback that you bought another $2,600,000 Does that then hit the $10,000,000 Or you have no capacity left under the current buyback? And then if so, are there any plans to do?

Speaker 2

Yes. No. So we do because we did renew our program. I believe I want to make sure about this. I think it was in May, we paid $0.15 $0.16 we renewed the program.

Speaker 2

The rate limiting factor is going to be our credit facility. So we are talking and working with them to increase the bucket. But that is going to be I mean, as of today, the it's $5,000,000 on an LTM period. We're working with them, and I prefer not to the same thing until we get that finalized. But yes, that's going to be the rate limiting factor right now.

Speaker 3

Okay. That's great. That's all I have. If anyone else has questions, thanks. Thanks,

Speaker 2

Scott. Appreciate the support.

Operator

Thank you. Okay. Sir, we currently have no questions on the lines at this time. So I will hand it back to Mr. Stacks for any closing comments.

Speaker 2

Great. Thank you, operator. Thanks, everyone, for joining our Q2 call. I hope everyone has a great Friday and great weekend. Bye bye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. And you may disconnect your lines at this time. And we thank you for your participation.

Powered by Quartr
Earnings Conference Call
SWK Q2 2024
00:00 / 00:00