SWK Q2 2024 Earnings Report

SWK EPS Results

• Actual EPS: $0.46
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

SWK Revenue Results

• Actual Revenue: $11.54 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

SWK Announcement Details

• Quarter: Q2 2024
• Date: 8/15/2024
• Time: N/A
• Conference Call Date: Friday, August 16, 2024
• Conference Call Time: 10:00AM ET

SWK (NASDAQ:SWKH) Holdings Corporation, offers specialty finance and asset management services in the United States. It operates in two segments, Finance Receivables and Pharmaceutical Development. The Finance Receivables segment provides customized financing solutions to a range of life science companies, including companies in the biotechnology, medical device, medical diagnostics and related tools, animal health, and pharmaceutical industries, as well as institutions and inventors. This segment also offers non-discretionary investment advisory services to institutional clients in separately managed accounts to invest in life science finance. The Pharmaceutical Development segment provides customers pharmaceutical development, formulation, and manufacturing services, as well as formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence platform. It also offers intellectual property licensing business. The company was formerly known as Kana Software, Inc. and changed its name to SWK Holdings Corporation in December 2009. SWK Holdings Corporation was incorporated in 1996 and is headquartered in Dallas, Texas.

SWK Q2 2024 Earnings Call Transcript

Key Takeaways

• Core finance segment generated $6.5 M adjusted non-GAAP net income with receivables up 19% YoY to $267 M and yields rising to 14.6%, driving 15% revenue growth to $10.7 M.
• Q2 results included $4.1 M of impairments on two non-accrual borrowers, offset by a $2.4 M increase in the ILUVIEN royalty value and a $0.7 M gain on AOT warrant conversions.
• Share repurchases of ~210,000 shares for ~$3.6 M year-to-date lifted GAAP book value per share by 4% to $22.75 and tangible financing book value by 6% to $20.17.
• Antares division revenue nearly tripled sequentially to $0.8 M under its strategic partnership, backed by minimum guaranteed payments while bookings and pipeline expand.
• Despite an all-time high pipeline, Q2 deal close rates fell, prompting plans to pursue more creative financing and royalty structures to stand out amid growing competition.

Presentation

[Operator]

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

[Ira Gaston, Head of Investor Relations at SWK Holdings]

Good morning, everyone, and thank you for joining the SWK Holdings second quarter twenty twenty-four financial and corporate results call. Yesterday, we issued a press release detailing financial results for the three months ending June 30th, 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. These statements are based on our current expectations, and you should not place undue reliance on these statements.

[Ira Gaston, Head of Investor Relations at SWK Holdings]

Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk section, risk factors section of the SWK Holdings 10-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, who will provide an update on SWK's second quarter corporate and financial results. Jody, it's all yours. Go ahead, please.

[Jody Staggs, President and CEO at SWK Holdings]

Thank you, Ira, and thanks, everyone, for joining our second quarter 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 his first 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. Welcome, Adam. SWK's core business is financing innovative commercial-stage life science product companies through principal term loans and royalties, with a focus on $5 million-$25 million investments. During the second quarter, our core finance segment generated $6.5 million of adjusted non-GAAP net income.

[Jody Staggs, President and CEO at SWK Holdings]

The net finance receivables portfolio increased 19% year-over-year to $267 million, and the portfolio effective yield improved 10 basis points year-over-year and 40 basis points sequentially to 14.6%. Segment revenue increased 15% year-over-year to $10.7 million, as receivables growth was accompanied by a 15.4% realized yield. Second quarter 2024 financial segment results were negatively impacted by a net $4.1 million of impairments taken to two non-accrual borrowers and positively impacted by a $2.4 million increase in the carrying value of our ILUVIEN royalty, as well as a $700,000 gain on the conversion of AOTI private warrants to common stock, which was triggered by the company listing on the London AIM Exchange.

[Jody Staggs, President and CEO at SWK Holdings]

As a reminder, SWK carries private warrants at zero on our books. During the second quarter, we advanced $7 million to two existing performing borrowers, and in August, we closed on an up to $11 million royalty monetization with Relief Therapeutics. We are pursuing loans and royalties to multiple innovative life science companies and have the capital available to close these opportunities. Ou r Enteris division is ramping work with our strategic partner, as evidenced by segment revenue nearly tripling sequentially to $800,000. Under the strategic agreement, Enteris is entitled to receive low single-digit millions minimum guaranteed revenue payments for each of the six-month periods. For the first six 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.

[Jody Staggs, President and CEO at SWK Holdings]

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 operating costs in Enteris as revenue builds. We are pleased with the progress Enteris 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 million during the second quarter. Since quarter close, we have repurchased an additional 155,000 shares for a total cost of $2.6 million. As of June 30th, 2024, our GAAP book value per share was $22.75, a 4% increase compared to $21.79 as of June 30th, 2023.

[Jody Staggs, President and CEO at SWK Holdings]

Non-GAAP tangible financing book value per share totaled $20.17, a 6% increase compared to $18.95 as of June 30th, 2023. During the quarter, we wrote off the remaining value for potential future milestone and royalty payments associated with the Enteris’ Peptelligence license to Cara Therapeutics. This was in response to Cara’s decision to discontinue the clinical program for the underlying Oral KORSUVA program. Post this write-off, the Enteris segment has a book value of approximately $5 million, which consists almost entirely of PP&E. In summary, during 2Q 2024, our financial segment had solid results, which were negatively impacted by impairments at two borrowers. We are pursuing multiple financing opportunities and are working to close additional deals by year-end.

[Jody Staggs, President and CEO at SWK Holdings]

Our Enteris business has seen growth in revenue and bookings with the assistance of a partner and is positioned to be cash flow break even 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 our question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. We have a question from Scott Jensen, who is a private investor. Your line is live.

Good morning, Jody. Look, guys, nice quarter. I'm happy you took the Cara upfront charge, and it's nice to see within the 10-Q, the 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? Like, and so what do you see out there as far as that?

[Jody Staggs, President and CEO at SWK Holdings]

Yeah, good question. You know, so if you look at our pipeline this year, we've -- our pipeline's 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, you know, Peter Bromberg, our head of business development, has done a really good job and has sort of hit stride. So in the funnel has been good. Our close rate has been down. It's been, you know, 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 deals have fallen through.

[Jody Staggs, President and CEO at SWK Holdings]

There certainly is competition, you know, in the royalty space and some others, but I think a lot of it has been sort of discrete one-offs. You know, in terms of... Well, and just to state another sort of statement of fact, I mean, you can look at the public competitors, the BDCs in our space. Their bookings were down, flat to down, kind of through the first six months of the year, many of them, the guys that are our size, and, you know, they talked about less deal flow and kind of that sponsor-backed, you know, sort of tier A space. So there are a lot of people out there looking to deploy capital.

[Jody Staggs, President and CEO at SWK Holdings]

What we have to do, I think, is find unique opportunities, and I think this Relief royalty being a good example, where it's off the run. J.D., who's our Director of Underwriting, did a fantastic job with that one. Just kind of three unique royalties and some pretty hairy structuring, you know, different geographies, so we're gonna have to be creative. We're gonna have to find unique opportunities. We've got to go hustle. 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 million sponsor-backed deals. Like, we'll never put money to work that way, so if it's gonna be, it's gonna be hustling and finding ways to be helpful to folks.

Okay, thanks. And another question, as you said in your opening statement about the buyback, that you bought another 2.6 million. Does that then hit the 10 million? Are you have no capacity left under the current buyback? And then, if so, are there any plans to?

[Jody Staggs, President and CEO at SWK Holdings]

Yeah. No, so we do, 'cause we did renew our program, I believe. I wanna make sure about this. I think it was in May.

Yeah.

[Jody Staggs, President and CEO at SWK Holdings]

We May fifteenth, sixteenth, seventeenth, we renewed the program. You know, the rate limiting factor is gonna be our credit facility. So we are talking and working with them to increase the bucket. But that-

Okay.

[Jody Staggs, President and CEO at SWK Holdings]

That is gonna be. I mean, as of today, it's $5 million on the LT period.

Okay.

[Jody Staggs, President and CEO at SWK Holdings]

Now, we're working with them, and I'd prefer not to say anything until we get that, you know, finalized, but yeah, that's gonna be the rate limiting factor right now.

Okay. That's great. That's all I have, if anyone else has questions. Thanks. Continue.

[Jody Staggs, President and CEO at SWK Holdings]

Thanks, Scott. Appreciate the support.

[Operator]

Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one on your telephone keypad. Okay, so as we currently have no questions on the lines at this time, so I will hand it back to Mr. Staggs for any closing comments.

[Jody Staggs, President and CEO at SWK Holdings]

Great. Thank you, operator. Thanks, everyone, for joining our second quarter call, and 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.

Participants

Executives

• Ira Gaston, Head of Investor Relations
• Jody Staggs, President and CEO

Analysts