SWK Q4 2024 Earnings Call Transcript

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March 20, 2025

There are 6 speakers on the call.

Operator

Greetings. Welcome to the SWK Holdings Fourth Quarter twenty twenty four Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Susan Zhu, Investor Relations. You may begin.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining SWK Holdings' fourth quarter twenty twenty four financial and corporate results call. Yesterday, SWK Holdings issued a press release detailing its financial results for the three months ended 12/31/2024. The press release can be found in the Investor Relations section of swkhold.com under News Releases. Before beginning today's call, I would like to make the following statement regarding forward looking statements.

Speaker 1

Today, we will make 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. 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 Risks and Uncertainties Factor section of SWK Holdings ten K 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 Staggs, President and CEO and Adam Reis, CFO, who will provide an update on SWK fourth quarter twenty twenty four corporate and financial results.

Speaker 1

Jody, go ahead.

Speaker 2

Thank you, Susan, and thanks everyone for joining our fourth quarter conference call. We are pleased with SWK's fourth quarter performance and the company enters 2025 on solid footing. Our fourth quarter was highlighted by solid financial performance, including $8,200,000 of finance segment net income, improvement in the portfolio's credit quality and $44,000,000 of capital deployed into yielding finance receivables to life science companies. Our non GAAP tangible financing book value per share increased 8% year over year to $21.15 and with share trading at a discount to book and given our excess capital, we have been active purchasers of our shares and having repurchased approximately 100,000 shares for $1,600,000 since 09/30/2024. During the fourth quarter, we closed an up to $8,000,000 senior secured term loan to Triple Ring Technologies, upsized the loan to $30,000,000 and advanced a cumulative $10,600,000 to four performing borrowers.

Speaker 2

In January, we closed an up to $15,000,000 term loan with Impedimed with $10,000,000 advanced at close. These are all core SWK financings to commercial stage life science companies. Each is either public and has demonstrated the ability to raise capital or private with a supportive sponsor. Since we last spoke, three STVK financial receivables were repaid at premiums to the GAAP carrying value. In December, VERU made a $4,200,000 payment to fully satisfy the FC2 royalty.

Speaker 2

The FC2 royalty generated a 45% IRR and a 2.7 X MOIC. In December, Molecularite made a final payment totaling $12,200,000 to repay its term loan to SWK. The Molecularite term loan generated a 20% IRR and a 1.6 MOIC. SWK continues to hold equity in Molecularite, which is carried at zero on our books. In March, ANI Pharma made a $17,250,000 payment to exercise an option to buy out the ILUVIEN royalty.

Speaker 2

The ILUVIEN royalty generated a 20% IRR and a 1.8x MOIC. At 12/31/2024, we had $13,800,000 of gross finance receivables on non accrual. The non accrual receivables have a 15% CECL reserve thus our net non accrual totaled $11,700,000 This morning, we announced the signing of a transaction to sell our remaining performing royalty portfolio for $34,000,000 The deal is expected to close in approximately two weeks. In combination with the ILUVIEN buyout, the $51,300,000 of proceeds from the two monetization transactions is approximately $1,000,000,000 more than the carrying value at 12/31/2024. Upon closing of the transaction, we also expect to close out a Japanese yen hedge, which will free up an additional $4,500,000 of cash.

Speaker 2

Pro form a for these changes, as well as a $3,000,000 principal repayment from 4Web in the first quarter of twenty twenty five and using the twelvethirty onetwenty twenty four balances, our go forward gross portfolio consists of approximately $218,000,000 of performing loans, $14,000,000 of non accruals and approximately $5,000,000 of equity spend warrants. Our fourth quarter twenty twenty four portfolio effective yield was 15.5%. The effective yield is a yield assuming all financial receivables pay as modeled. This figure is not adjusted for the post quarter changes, but should be in the neighborhood of the go forward portfolio yield, even considering the royalty sale. Finally, as of yesterday, our cash totaled over $30,000,000 and we have no borrowings under our revolver.

Speaker 2

Assuming closing of the final royalty transaction and release of the FX hedge, our gross cash will total nearly $70,000,000 We anticipate the Board will declare a dividend on the closing of the final royalty transaction. Turning to our Entera CDMO division, which has been rebranded as Mod3 Pharma to signify its transformation into a pure play CDMO business. We are pleased with MOD3's twenty twenty four results as segment division revenue totaled $3,600,000 tripling from $1,200,000 in 2023. We expect continued growth in 2025 and the team is focused on positioning the business for unsubsidized profitability by year end. We are in regular contact with our strategic partner and believe they are pleased with MOD3's performance.

Speaker 2

With that, I will turn the call to our CFO, Adam Rice to review the quarter's financial results.

Speaker 3

Thank you, Jody, and good morning, everyone. Yesterday, we reported earnings for the fourth quarter of twenty twenty four. We reported GAAP pre tax net income of $8,600,000 or $0.7 per diluted share. Our reported fourth quarter twenty twenty four net income of $5,900,000 after income tax expense of $2,700,000 included a $1,100,000 increase in finance receivable segment revenue and a $1,300,000 increase in Pharmaceutical Development segment revenue. The $1,100,000 increase in revenue or in year over year finance receivable segment revenue was primarily due to a $2,300,000 increase in interest and fees earned on newly funded loans and royalties.

Speaker 3

The accelerated fees on early payoffs and accelerated fees on early payoffs. The increase in finance receivable segment revenue was partially offset by $900,000 as a result of two investments entering non accrual status this year. As of 12/31/2024, our GAAP book value per share was $23.45 a 5% increase compared to $22.33 as of 12/31/2023. Additionally, non GAAP tangible finance book value per share totaled $21.15 as of 12/31/2024, and 8.3% increase compared to $19.53 as of 12/31/2023. Overall operating expenses, which overall operating expenses, which include interest expense, pharmaceutical manufacturing, research and development expense, general and administrative expense and provision for credit losses were $6,600,000 during fourth quarter twenty twenty four compared to $6,800,000 in fourth quarter twenty twenty three.

Speaker 3

Mod three operating expenses were $1,600,000 in fourth quarter twenty twenty four compared to $1,800,000 in fourth quarter twenty twenty three. And finance receivable segment operating expenses were $5,300,000 in fourth quarter twenty twenty four compared to $5,600,000 in fourth quarter twenty twenty three. The finance receivable operating segment expenses further breakdown for fourth quarter twenty twenty four to general and administrative expenses of 2,100,000 provision for credit losses of $2,000,000 and interest expense of $1,200,000 and for fourth quarter twenty twenty three general and administrative expenses expenses of $2,100,000 provision for credit losses of $2,400,000 and interest expense of $1,100,000 The decrease in finance receivable segment operating expenses was mainly due to a $400,000 decrease in provision for credit losses. The decrease in provision for credit losses is most notably attributed to the strategic exit of three non accrual investments during the quarter. Turning to our share repurchase program, we bought back roughly 50,000 shares at a total cost of $800,000 during the quarter.

Speaker 3

Since quarter close, we have repurchased an additional 47,000 shares for a total cost of $800,000 Lastly, for financial reporting purposes, we have transitioned the Montserrat segment to held for sale as of 12/31/2024. The transition to held for sale status was based on criteria set forth in GAAP accounting guidance and is related to the option purchase agreement entered into between Modderie and a strategic partner effective 01/01/2024. With that, I'll turn it back over to Jody.

Speaker 2

Thank you, Adam. We entered 2025 with a healthy loan portfolio yielding in the mid teens as well as $30,000,000 of gross cash. The sale of our remaining performing royalty portfolio and close out of the FX hedge will add an additional $39,000,000 of cash to our balance sheet and we anticipate declaring a dividend on the closing of the final royalty transaction. Our MOD III CDMO division is self sufficient and working with our strategic partner to address the sizable need for Phase one and Phase two nasal CDMO services. With that, let's open the call to questions.

Operator

Absolutely. At this time, we will be conducting a question and answer session. The first question comes from Scott Jensen, private investor. Please proceed.

Speaker 4

Hi, good morning, Jody and team. Congratulations on

Speaker 5

so much progress since we last spoke.

Speaker 4

I guess I got a couple of questions for you. When you're thinking about a dividend, since it's such a large pile of cash, are you thinking about ongoing dividend or a special dividend returning some of that cash, that cash pile to shareholders?

Speaker 2

I would yes, Scott, thanks. So the Board is still considering our options. I would anticipate initially a one time special dividend. That doesn't mean that there might not be additional special dividends in the future. But at this time, I don't anticipate a recurring dividend.

Speaker 4

Yes. Love it. That's what I would hope for as well. Second, as far as the buyback, where are you on the current buyback? And then again, is that going to be something the Board is going to consider about renewing or increasing the buyback?

Speaker 2

Yes. And Adam, if you have the email pulled up, I might from Courtney, I might have you look and check how much room we have, but we do have room enough room on our buyback. It's been interesting trying to navigate this with our blackout period. So once we go into the blackout period, the algorithm takes over and we don't really have control over how many shares are repurchased. When we're not in the blackout period, we can direct it and be more aggressive or less aggressive.

Speaker 2

So I would say we're still active repurchasing of our shares. We think particularly with the news we announced today, shares are trading at a 20% discount. That's an attractive use of capital. So we'll continue to do that. We should be out of the blackout period when we report first quarter roughly May 15 in that ballpark.

Speaker 2

And the program will expire. I think it expires roughly that date. I don't we have not discussed it, but I think the Board views the buyback as an attractive use of capital. And I would expect assuming everything else is equal that the Board would strongly consider reauthorizing the program for another year.

Speaker 4

Excellent. Thank you. And I just also want to say congratulations on all those workouts, BioLase, etcetera. Those were excellent in cleaning it up.

Speaker 2

Thank you, Scott.

Speaker 4

I will get out of queue and see if somebody else, but keep up the good work and thank you again and love reading the progress.

Speaker 2

Thank you. Appreciate the support.

Operator

Okay. We have no further questions in the queue. I would like to turn the floor back to Jody for any closing remarks.

Speaker 2

Thanks, John. Thank you for joining us today and for your continued support of SWK. We hope everyone has a great day. Thanks.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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