Q3 2020 SWK Holdings Corp Earnings Call

Good morning, and welcome to S. W. K Holdings third quarter financial results Conference call.

All participants will being listen only mode.

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Today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.

I don't like to turn the conference over to Mister Jason Randall do your parents strategic advisers. Please go ahead.

Good morning, everyone and thank you for joining S. W. K holdings third quarter, 20th 20th financial in corporate results.

Friday afternoon S. T. A D K holdings issued a press release detailing its financial results for the three months ended September 30th 2020.

Press release can be found an investor relations section of S. W. K, a whole dot com on your news releases.

[noise] before beginning today's call I would like to make the following statement regarding forward looking statements.

They will be making forward looking statements about future expectations planned events and circumstances, including statements about our strategy future operations and the development of our consumer drug product candidates plans for future potential product candidates and studies 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 risks and uncertainties, including those details on the risk factors section of S. W. K Holdings 10-K filed with the S. E C and other filings we make the S. C C from time to time.

S. W. K 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 on today's calls Winston Black Chairman and C. E O S. W. K holdings will provide an update on Esther the case third quarter, Twenty-twenty corporate and financial results Winston.

<unk> go ahead.

Thank you Jason.

Everyone for joining our third quarter conference call.

Is there a quarter of twice what I can tell you what it's been a very strong here for us to be K underscored by improved quarter over quarter performance. The other jeopardy that was driven by both returns of our specialty for that business and other.

Subsidiaries interest for our farmers are any of them also favorite led to it's tough Telegent technology licensee therapeutics.

We believe this combination of reflective other potential if that's the case business model and our ultimate focus on what's housing life science products and associate it intellectual property.

You believe in her she doesn't amex you remain favorable for especially for that business. Throughout the reminder, 2020 at into twice a day one.

And we anticipate this on that will enable us not only generate consistent returns for my current best receivable portfolio, but to also on hand start position as you go to specially for answering firms for small and midsize commercial space life sized companies and your capital on their growth strategies.

Before I discuss our third quarter results and achievements like for.

About a brief update on the ongoing COVID-19 situation a capital position that are subsidiary interest farmer.

As you think I'd previously has to be kids as a business has been impacted by the COVID-19 outbreak.

You remain in regular contact with the individual management teams of our portfolio companies.

We're pleased to recently reported the oppressive advances our partner companies have made over the past several months and it's challenging environment.

Collectively the the progress we witness.

For my partner companies demonstrates the soundness of our focus on the best thing differentiate companies are strong enough for property second commercial products that whole day, ma'am within the health care system.

For sure made the foundation of our business and we believe.

Will drive our business going for even amidst the challenges packed into butter U S economy health care industry. The COVID-19.

Characteristic of the strategy with a pair of royalty acquisitions, we complete over the past few months.

October repurchase from true health care certain royalty interest I'll portfolio products marketed in the Austin market.

This was preceded in August by the purchase of the royalties for co flicks, Cabela and that'll be so PDL about farmer.

Yeah for opportunistic transactions very much in keeping with our approach to investment.

In addition on October around physician and a new therapeutics or should we pay it in conjunction with the sales unnecessarily, but don't they necessarily K. Realizing approximately 20 per cent are on the transaction.

Also for him, but if it has to be K.

The main reason, we walk capitalized approximately 30 meal out of cash or vulgar availability support a partner companies and capitalize on potential investment opportunities.

I like visited on the companies Bdcs and some investment cause after Sov case balance sheet is currently not leverage.

We are also pleased with the progress that are subsidiary and terrorist for our former led by C E O as vehicles well Phd.

That's the way it seems to work closely with the terrorists strength in this operation.

Asked expansion of its manufacturing capabilities and the hand substantial thing and.

In this regard and terrorists is area to completion of them have actually I'm still expansion on provide the company with the ability to manufacturer to scale necessary for like say, it's clinical trials potentially product commercialization.

Overall on terrorists continues to prove its value executing a trip on growth strategy to maximize the potential the companies intelligence platforms. There are several partnerships in advance and it's on a troubled lifeline.

This is the tangibles affirm other recently announced two and a half million milestone payment to on terrorists from character predicts for the ongoing development work with <unk> with just every day as in child receive when it happened for the contractual splits agree too and the terrorists acquisition going on it.

A suitcase also eligible to receive additional potential milestone payments for the next several quarters subject to the achievement of certain development milestones for for two though.

Received this first milestone from character if he likes.

It was exciting moment crested we carry on our shareholders and the only highlights advised propositions on the terrorist represents that's for the day, but also illustrates democratization opportunity than a teller and terraces apologist platform offers and development is oral tablet formulation peptides in small molecules.

Importantly, herpes you for future potential partners, we believe they successful completion of the milestone validates that's in depth of interest as comprehensive on suitable capabilities.

As of September 30th 2020.

That's the case portfolio of royalties on structure credit back by royalties total approximately 108 3.5 million across 20 for partners that compares favourably. The last quarter is 178.6 million.

178 points.

Excuse me and 175.5 million as of September 30th 2019.

At the end of the third quarter Twenty-twenty.

The way it average projected effective yoga, the finance receivables portfolio. It was 13.4 per cent.

Moving on corrupt positions, which was up mozley sequentially from the second quarter 13.2 per cent.

That's gonna be K reported a book value per share $18 and 40 per cent as I said September 30th 2020, which includes a twice that for sure negative impact from the amortization other terrorists intangibles.

Prepare to $18 three in one sense of December 31st 2019.

$17.63 year ago.

Tangible financing book value per share, which excludes the to for texts asset intangible assets goodwill and contingent consideration payable total $15.52.

That should be used a tangible financing book value per share is relevant metric either companies for especially for this business.

For third quarter 2020.

Mkay reported tall revenue 10.6 million compared to 6.3 million the third quarter of 2019.

Primarily consisted of interest and fees on a fast receivables and red.

All day payments generate I portfolio companies as well as far as that goes all the other that'd be generated on terrorists, including the care a milestone.

The appropriate for the million increase revenue was primarily driven by the two and a half million milestone at 1.6 million aggregate increase in the interest fees and royalties on on for you.

Oh.

Income before taxes for the third quarter of 2020, total 3.9 million compared to 399 for the same period.

Previous year day.

The increase is driven by the increase in revenue, partially offset by a 2.3 million increase in the expenses.

Ladies for the amortization of in Paris intangible at a million dollar increase in overall operating expenses, excluding this amortization.

The gap net income for the third quarter ended September 30th 2024 for 3 million.

Three or four cents per diluted share compared to for 2 million.

Three two sets for it a new chair for other quirk doesn't 19.

For a third quarter of 2020, and I got adjusted an income 6.7 million compared to apply for one nine for the prior year's period.

For the third quarter Twenty-twenty non-GAAP net income generally generate about especially for that business total $6.2 million as compared to 6.5 million prior years, which.

Prior year included one for that million dollar gain related to receipt of the Sox dark for the exercise of our social circle warrants or the quarter ended September 30th 2019.

Income producing assets, which defined as a financial receivables and corporate debt Securities total of 183.5 million as of September 30th He hasn't twice Where's the increase compared to last year's on in 73 $6 million and up sequentially. It's on the second quarters are needed 2.3 billion.

Especially for me I suppose if it continues to perform well and we're working hard to target new transaction to leverage our areas of expertise and I'm going to need among small to mid size life science companies access capital.

We're originally well capitalised to meet this <unk> this continues.

The environment and what we expect will be increasing demand for these financial products.

And a test the company's overall growth strategy continues to take shape. As you remained pleased with the progress evident as a company works towards mission to be a leader in the development of orally delivered peptide and so I'm all for therapeutics.

In a year, we have added personality on terrorist is team work to expand the companies manufacturing facility continues according to plan.

In the short time since being named <unk> articles I continues to make a substantial embrown terraces business is there any more robust and target business development and prioritizing potential on pipeline opportunities that can enable the company to capture more value, creating opportunities and maximize the potential of is that tells its platform.

As I mentioned previously have intelligence formed the backbone of carris oral placebo program, which currently encompasses three separate clinical studies each of which is expected to meet important clinical and regulatory milestone in 2020 and really 2021.

Interest cause he's evaluate it's in <unk> park pipeline of bolts habit reformulation. So there's just the molecules that address and then begin treatment opportunities force. There is no oral delivery option. These products, which are on various stages of those almost could provide us to be K with attractive ally sending out for charities.

For the for to being inactive and supportive partner is in terrace seeks to advance as external internal <unk> programs.

As well as development of new licensing partnership opportunities that leverage Pep Telegent platform.

We persist in our confidence that the opportunities that terrorists on may attractive and it just big providing a more detailed update on terrorists progress and early 2021.

Last name.

I'd like to note that on it can be five one share repurchase program expired on September 30th July 20th.

We were purchased 70176 chairs during the third quarter.

An aggregate since commencing their purchase program is to be cash we purchase 348368 chairs for approximately 4.2 million.

[noise] broke into the evaluating additional share it for <unk> programs.

Hey, Christian on the third quarter cause he was in a sustained period for performance for S. W. K. All this was made possible by diligent efforts of our survey K holdings in a terrorist team I want to get like to think on employees for the dedication on loyalty or say colors for the continue support as we have all of our model and gross W cable lines.

But that I want to open to call two questions.

When I'll be getting the question and answer session to ask a question may crestar them on on your Touchtone phone.

For using a speaker phone please pick up your handset before pressing the keys.

What's wrong on your question. Please press Star then too.

This time, we'll plug on pause momentarily to assemble the roster.

First question comes from Kyle Bowser.

Call. Your security. Please go ahead.

Hey, good morning, Winston Thanks for all the updates here.

<unk>.

Have really nice milestone with with the care partnership.

And I think you recognize two and a half million, but you said 1 million of that is to be distributed to sellers have been terrorists. What was that just distribution recognizing Q3 or is it more of a queue for.

Yeah that day.

Yeah that that's that's a good question. So the the milestone was recognized uhm.

The quarter and the payment was received in October and then the you know the.

Payment for this so that was awesome major October so.

You'll you'll see on receivable the balance sheet and then it's been working all work through the for for got it great.

And so this is the first milestone from from Cara Night, and I think the next milestone would be a payment of.

25 per cent. His first one was 60 per cent can you talk about what day. The next milestone is that we're looking for I think it's a development one versus a regulatory but just kind of any color on on you know what the cadences of these and and and what they are.

Sure Uhm, Yeah, Great question, and I wish I could answer with complete the.

Yeah, I guess transparency.

For as soon as you know the the milestones and they care agreement had been you know I've been redacted.

In terms of what they're actually for the and the and the amount.

Oh, so the I think yes, we'd be able to talk for for you.

The only I can probably really shares that just yeah that disagreement is pretty typical for for other formulation type of your news for those various milestones that happened along the way during the day or development. So uhm yeah. Thank you for a safe to say it'll be additional I'm also payments that that occur as.

The program continues to go to a dance.

Got it yeah.

Fair and and also I didn't I didn't catch it but regarding a I M. T acquisition by Nestle I think you were able.

To record for point 4 million, so nice exit there will that be recognized as revenue in queue for as well.

Sure Yeah. So that that was that's gonna be a fourth quarter transaction or the event and the and the financials and that for that for for for for isn't is it all day <unk>. The principal yeah, what will be paid back but.

But that was the cash that we received which was both for principal of and interest dependencies.

Okay, Okay got it.

And then on the day specialty finance side of thing just lastly, here on obviously steady results and and you've been very active in adding new assets. I. I think you mentioned you have about 12 million in cash with access to an additional 20 million on your resolver I'm I'm guessing that's that's plenty of capital to be.

B I'm able to continue seeking out additional assets, despite COVID-19 ramping up again and wanting some buffer for your portfolio companies, but is that fair to say that you'll continue to kind of make an additional investments in in the specialty finance business and the balance of the year.

[laughter] yeah yeah.

Yeah that that's yeah. That's right. So Yeah addition to this you roughly called thirty-two.

For those two numbers together, yeah, plus the your portfolio flows yeah. We'll we'll continue to go to reinvest in your opportunities that come along works extremely active looking at new opportunities and so we hope the homeland some additional ones here in the near future and then of course, we'll.

Yo evaluate the additional share repurchases and another uses of other capitals, Yeah will do with the Golden for me, it's you're great stewards of our shareholders capital and putting it to do you have the the best for suggested return Houston, we can.

Oh, great and I appreciate that and a lot of great updates here. Thanks for taking my questions.

Thanks caliber appreciate though.

Thank you again, if you'd like to ask a question. Please press star one.

Next question comes from Steve Hale somehow partnership. Please go ahead.

Wait said Hey, Buddy.

<unk>, let's see if how are ya.

Wow, they really were hanging in there for your help in west.

Good to hear Hey, you mentioned that a couple of things that are related questions. So that the the company.

Does not have debt like most bdcs. The company also does not have kind of a state. It's systematic return a capital b, a dividend or share repurchase and you mentioned that the the repurchase X.

Expired September 30th Great that you bought back three per cent of chairs that repurchase kind of turned on and turned off multiple times over the last 12 months.

Does the company have any plans to kind of say you know here's here's how we returned capital to be more in line with other financial related entities or what does that look like.

I appreciate the question see yeah, and it's obvious on the <unk> smoking about for.

And you're you're right. If you don't have a stated you'll go in terms of.

What amount of your portfolio cash flow that we intend to redeploy into either the staffer goodbye backstrom dividends your bushes.

Next getting additional transactions yeah, yeah as we.

Yeah, that's why I named the board is good for you to discuss.

And yeah, I think just do.

Does that my son, it depends on the opportunities that for me, but before.

For the company in terms of work Boy capital.

I could tell you to believe that pushes off as a great use of bizarre for.

Capital, particularly in Boston and things that we know opening our own portfolio uhm.

And that the yep.

Wish I had a a a coffee to update to give you on that for that you'll never made some of the the the the board is discussing in the W. On additional on places in the future about that.

Terrific day, if I can if I can do one more Wednesday and for it mentioned and not having leverage you guys have obviously.

Like you've executed well cleaned up the portfolio grow on the portfolio. The uplifting very happy with your work in the Chief Executive see when you think about that the credit facility and you mentioned you guys don't have credit. So obviously that serve you well during COVID-19 when everything was uncertain not being levered and.

Obviously go but it's still not go on you know she's still around all the other vaccines are looking good but would you.

Think about the the balance sheet and having leverage like other financial entities is that something where you guys are.

On principle thinking that you remain on leopard is that how we think about long term S that'd be K.

Right outside of just right now or do you think of it.

That's a that's a great question for you and.

Yeah, Yeah I think.

<unk>, Yeah, I hate to say that you use the term for goldilocks for that but yeah.

Yeah, I think we can we can definitely deploy or take on more more leverage you too you have to get him to grow the portfolio Uhm.

Yeah, I think as we were we set today with the kind of the the the more kind of constant for four months and.

And I appreciate your comments on to you on a whole it'll be cleaned up over time.

Certainly would be great.

I think we we definitely can can take on some you know some leverage and yeah. That's totally that'd be yeah, that'd be pay to go to evaluate.

The current for Barbara is 29, one and then and that expires at the end of June 2021. So.

That's double the time will be here pretty quickly so he's price eight to say with evaluating what kind of opportunities are too.

The finance that are too.

You end up with a new line of potentially larger and Yep. That's up for me that we will.

Definitely look at that's S T.

Perfect keep up to go work with it I appreciate your time.

Thank you I appreciate the questions.

This concludes our question and answer session.

And I would like to turn the conference back over to Mister Winston Black for any closing remarks. Please go ahead.

Thank you.

Clothing I appreciate your time and attention look for the future updates that they can do to Manchester Vaca holdings.

I could also extend my sincerest wishes of good health to all.

871.

[noise] conference's now concluded. Thank you for attending today's presentation you may now disconnect.