Q1 2021 SWK Holdings Corp Earnings Call
Good morning, and welcome to the WK Holdings first quarter 2021, and financial results Conference call.
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I would now like to turn the conference over to Jason Rando.
With cheaper and strategic advisors. Please go ahead.
Good morning, everyone and thank you for joining S. W. K holdings first quarter, 'twenty, 'twenty, one financial and corporate results call.
Yesterday evening SDK Holdings issued a press release detailing its financial results for the three months ended March 31 2021.
Press release can be found and the Investor Relations section of S. WK whole dot com under news releases.
Before beginning todays call I would like to make the following statement regarding forward looking statements.
Today, we will be making forward looking statements about future expectations plans and events and circumstances.
And it's about our strategy future operations and the development of our consumer and drug product candidates and plans for future potential product candidates and studies and our expectations regarding our capital allocation and cash resources.
These statements are based on 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 and the risk factors section of S. WK Holdings 10-K filed with the SEC and other filings, we make with the SEC from time to time.
That said you can't holdings disclaims any obligation to update information contained in these forward looking statements.
As a result of new information future events or otherwise.
Joining me on today's call is linked and Black Chairman and CEO of that study U K holdings, who will provide an update and as to the Uk's first quarter 2021 corporate and financial results.
Winston go ahead.
Okay.
Thank you, Jason and everyone for joining our first quarter conference call.
The first quarter of 2021, continuing what has been a sustained period of strong operating performance for us to be K highlighted by the $16 seven per cent realized yield and our finance receivable segment and continued strong credit trends.
We've been able to attain because this is a quarter over quarter and year over year returns due to our focus on investing and small and midsize and life science companies with differentiated patent protected worst per stage products.
But it's about all of this proven and highly effective for our survey for two reasons. So it seems to be substantial innovation and health care and this innovation requires capital to brain, resulting technologies to market.
As a result.
There is ample opportunity to leverage our expertise and financial offerings to support these people and companies with Joe's benefits to the borrower and positive returns for us to be case shareholders.
Oh illustrative of our opportunity.
Or is it lost cheap financing has made thus far and 2021.
In March we closed the $9 million loans with some serious pharmaceuticals by about three be compounding pharmacy focus on dermatology customers.
And in April we completed a 5 million synthetic royalty transaction with ideal implant and medical device company focused on the aesthetic space.
Yeah.
Looking out through the rest of 2021, we believe and if she's a dynamics.
We will remain favorable to our business strategy and.
And that's to be King remains well positioned to capitalize on these dynamics as we continue to identify compelling investment opportunities.
Currently we have approximately $30 million and cash and revolver availability to support our partner companies and capitalize on potential investment opportunities.
The first quarter also witnessed an important milestone with our subsidiary and terrorists Biopharma.
And terrorists announced the completion of the expansion of its manufacturing facility launch it was contract development and manufacturing C. D M O business segment.
And we first considered acquiring and tourists and we view the company's manufacturing capabilities and the significant about hundred realized growth driver.
A key opportunity.
Our build out of its manufacturing operations to accommodate later stage clinical trials and commercialization needs.
With the expansion complete and terrorists now boasts a 32000 square foot facility that includes a 6000 square feet and clean room space.
And you try 900 square feet dedicated to the containment and processing of high potency API.
As a result, and terrorists has the manufacturing capability to produce clinical trial material to phase III as well as products for commercial launch.
Moreover, the simultaneous launch of it and see how our business enables and terrorists sovereign custom solutions for the formulation development and manufacturing and a solid oral dose forms for difficult to formulate BCS from three five to three and four compounds and peptides and highly potent compounds.
These enhanced manufacturing capabilities should enable and terrorists and deepen its existing manufacturing relationships and bolster its ability to skirt and new high value relationships with companies seeking and CMO capabilities and the U S. Regardless of what other parts of the solid oral formulation and using the companys from part proprietary oral formulation technologies telegent superpower or other tablets.
Acknowledges.
It should also be no there and terrorists liberalize construction timetable and mid to COVID-19 pandemic, no easy feat and one that serves to be congratulated.
In addition, as manufacturing business and C. O Rajeev calls continues to execute a dual arm and growth strategy and maximize the potential terrorists. It's about telegent simple permit technologies through strong partnerships and a bad thing and so and in terms of the pipeline.
And I regard, we expect from terrorists to execute additional feasibility agreements over the coming quarters with what our secured in 2021, especially and terrorists has initiated a clinical program for one of its internal firefighters and two products.
Yeah.
Turning to our finances as of March 31, 2000, and spray one has to be case portfolio of royalties and structured credit and backed by royalties totaled approximately $219 million across 26 partners.
That compares favorably with $212 4 million as of December 31, 2020, and 181 million as of March 31st 2020.
During the first quarter of 2021 as we briefly discussed that's the vacate and deploy at some point 1 million Skus and serious pharmaceuticals.
On March 31st two dozen trade went the weighted average projected effective yields of the fast portfolio was 13, 8%, including non accrual positions versus 13.4 per cent as at the end of the first quarter and previous year.
Yeah.
And I simply can't reported book value per share of $19.07 as of March 31, 2021, which also included a $12.05 per share negative impact from the amortization of and terrorists and tangibles and nine cents per share positive impact from mark to market changes on our warrant and equity security portfolio.
Compares to $17.96 as of March 31st 2020.
Tangible financing book value per share, which excludes the deferred tax assets intangible assets goodwill and contingent consideration payable totaled $16.31 per share compared to $14 95 per share.
Higher year.
And have your views of tangible financing book value per share is relevant metrics value the companys core, especially finance business.
For the first quarter 2021 and should be kept reported total revenue and nine 4 million compared to $7 3 million from the first quarter of 2020.
Revenue primarily consisted of interest and fees earned on our finance receivables and royalty payments generated by portfolio companies and the increase revenues, primarily due to higher finance receivable as interest income.
Income before taxes for the first quarter at toy Fair and one total $4 3 million compared to $3 $4 million losses and same period previous year.
The year over year is the year over year $7 7 million increase is primarily driven by the half and an increase and revenue from our pharmaceutical development segment.
And as you are about 1 million reduction and general administrative expenses and $2 2 million unrealized gain on our derivatives.
And at 1.1 at 1.8 million unrealized gain on equity investments.
And 400000 decrease and deferred taxes, and a 1.8 million a.
Decrease in amortization expenses related to and terraces and tangible assets.
The GAAP net income for the first quarter ended March 31st 2021 totaled $3 4 million or 26 cents per diluted share compared to a loss of $4 7 million or 36 cents per diluted share for the first quarter of 2020.
And the first quarter of 2021 adjusted net income was $4 7 million compared to $2 8 million.
For the first quarter 2020.
In addition for the first quarter.
Non-GAAP net income generated by the specialty finance business totaled $6 8 million, which compares to $4 90 day for the prior year's period.
Our specialty finance business continues to perform well and we're working hard to identify new transactions that leverage our areas of expertise and a growing need amongst small and mid sized life science companies accessed.
Capital for future growth.
Lastly, yesterday, we announced that we added markets Pennington to our board of directors and.
Carlson and catheter withdrew its offer to acquire especially finance portfolio as well as the conclusion of the special committee process to evaluate the Carlson offer and welcome bargains to our board and look forward to working with him and the New Strategic review Committee of our board.
That will be focused on exploring strategic alternatives for the company with a view toward maximizing stockholder value.
Yes.
In conclusion.
And.
First quarter of 2021, and continue was better and created growth rest of BK. All this would be possible by the diligent efforts of the entire as to BK holdings team.
And what do you like to thank our employees for their dedication and loyalty and our stakeholders for your continued support as we evolve and grow and that's the BK holdings.
With that I went out to open the call to your questions.
Thank you.
And we'll now begin the question and answer session to ask a question and you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question today will come from Kyle Basseterre with Colliers Securities. Please go ahead.
Great. Thanks, and I went and thanks for all the updates.
Hey, Bob.
Just a day sorry, I didn't catch it and can you talk about I think you said 30 million and capacity on the revolver given and eat.
You've completed some.
Can you just talk about.
And.
What the capacity is I think it expired and kind of plans thereafter.
Sure Great Great question and I appreciate the opportunity to clarify that that statement. So yes. So you said you had roughly $30 million of kind of dry powder. If you will and the the revolver remains 20 million and it's and so yeah, we roughly have 10 million of cash as well yeah and the.
Release, we noted that we had a couple of.
Credits repay the arrow position and Fedex and so that that's kind of that plus our portfolio flows has kind of led us to this $30 million and liquidity regarding.
Yeah, you know going forward plans for the facility.
Our existing lender has agreed to them if we need it to extend the.
Facility to the end of September.
You know as you can probably appreciate the.
The special committee process that we're going through and made it a little bit challenging to complete the new facility and now that that process is concluded where we're kind of back working full steam ahead to get the facility replaced.
Which we're hoping to have something in place over and nice the nice quarter. So.
But we're also grateful that our current letter you ever has extended the timeframe if we need it to continue.
Continue and utilizing the facility.
Okay got it that makes sense I appreciate that.
And.
And I appreciate that there is distractions that and you know kind of pushed that out but good to hear it.
And that revolver is good and tell the end of September and terms of the strategic review Committee and now.
It's gonna be three people on that and.
Yeah, we'd be reviewing strategic alternatives, but yeah to the extent you're able to share or know him. You know are there is there a priority list and this is there.
And some alternatives that and maybe have legs as opposed to something about some of the others.
Can you just talk about you know, what what you've learned and all and the last I guess quarter.
And what sort of options remain on the table and and seen more compelling than others I guess any color there would be would be helpful.
Sure.
I would love to give you all sorts of insights into and do it every day that we're gonna be looking at and the and how its all going to play out.
But yep.
Unfortunately, I I really really can't.
Yeah.
And I think as you know them.
Yeah, just curious just kind of comment on the process that we went through and I think that are especially from any of our board and and Carlson.
Came tubes and agreement that there were probably better ways to maximize shareholder value. Then you go to solid portfolio of assets that you sense and.
So yeah, what I'm.
I'm grateful for you from for that conclusion, and I totally agree that theres a lot more that we can do on basketball shareholders and.
Yeah, Yeah there's.
A bunch of ideas that I have to do that but.
It's probably premature for me to speculate about what those are and.
And how it's all going to unfold and yeah I think that this this new strategic review committee is going to be moving forward with.
And just kind of it.
Clean and safe clean slate, if you will of all the alternatives that are available and the company as we know as you know we have a fantastic specialty finance business.
That is growing and.
It was undercapitalized and so we see a tremendous opportunity to grow that and what.
And the terrorists, there's there's certainly a ton of really interesting things, we can do with the business, particularly now that the manufacturing facility is complete and.
And and.
We're kind of getting through COVID-19, now and everyone and.
And then and the industry is getting back to work so I'm really excited about the the.
Future for the business and think we can really deliver for our shareholders.
I appreciate that and and regarding and terrorists business and now the facility is finished and theirs.
And some other opportunities out there and can you talk about how you think the addressable market has increased I mean, and it's been minimal value assigned to that business and and we've seen some some pretty nice take outs and the oral formulation space and so I guess I'm just wondering from evaluation.
Standpoint, how you how you look at and terrorists how the addressable market has maybe increased over the last couple of months.
And what you think the opportunity is there over the next call. It 12 to 24 months.
I appreciate that question.
[laughter], yeah, you're you're I'm chuckling, because they call that about the valuation of interest and all.
And even with an S. W. K oar and terrorists wood with let's say that there's very little value ascribed to it although I appreciate that comment relative to <unk>.
Where the stock trades and betting.
That's one of the issues that are that the strategic review committee will be looking at them, but yeah, but we certainly see a lot of value and and the platform there.
In terms of Yep.
Yeah, I guess public comps you know that there you know there are various public formulation comps that are out there that suggests that the technology is worth.
Worth more than the 21 million and halfway that we paid for it.
And if that was it certainly and I don't want to start.
You start throwing out numbers about what that is but certainly well north of that and go just for them.
And the technology platform alone and that they go continued execution of of care of them.
It continues to demonstrate that the technology does indeed work and does the deliver of the.
And that case of course, uva and into the into the bloodstream.
So I think its progress is a great.
Derisking event for us and them.
And on the technology in terms of the addressable market.
Yeah, the oral peptide market is.
Sufficiently large to extremely large that yeah. Like just for example, as you know atmosphere was taken out for about $1 8 billion for its single simple royalty on one what oral peptide.
So there's a tremendous amount of white space with.
With respect to what that platform itself can be worse, but yeah of course, adding the active door. It gets the more fully develops email platform to the business.
Those to start getting into the you know the oral.
And you're factoring in space and you know and were yep.
Yep.
And I have a figure to speculate on what that is but it's yeah. It's yeah.
Sufficiently but much greater than again.
And again, what we paid for it but.
Yeah, I think the important part about that which is which we haven't really spent a whole lot of time talking about or thinking about but yeah.
I think the.
And the manufacturing shortage that we're seeing.
Did you do to COVID-19 and a lot of manufacturing facilities being dedicated to those two to vaccines and and.
Another Lady treatments.
I think it really demonstrates the other great timing for this facility to be coming online, particularly in the U S is thus far from it in the U S continues to look for domestic manufacturers. So we're pretty excited about that but given that it's so nascent and that.
Yep.
Facilities, just turned on and then we're getting the kind of the sales process there.
Hope to be able to obtain new customers that it's a little premature to give price say what that looks like but you know as we think about the next 12 to 24 months.
Did the other the other part of the and terrorist story, where I think we're gonna be able to start seeing some you know some value creation is on the Oh and internal pipeline and stuff.
Yeah.
Mentioned briefly in the call and terrorists Hezbi has begun to the clinical program for one of its own internal assets and.
And I know everyone wants to know a lot more about it but as you know us for.
Probably conservative to a fault in terms of I'm talking about the progress that the company is making and maybe only one and talk about it but we know there's there's things of strong substance there.
From a quantitative perspective, and so yeah, I think as that that program continues and it and be good too.
Kind of understand its you know its value will be and communicating weighted this year about it.
Great I appreciate that and then just lastly.
And the specialty finance side of things and glad to see you had a couple of investments in the quarters and service and your ideal I'm just curious what that environment is like out there.
Is it been more of a competitive process and as you're looking at new transactions or is it about the same as pre COVID-19 and.
And just kind of wondering and.
And how some of these investments have shaken out in terms of other investors out there.
Sure Yeah.
That's a great question and something that we hear from our folks all the time and and.
You know our business is definitely unique and that we're you know we're not going head to head.
Solely trying to go after yep loans to venture back companies and I think that's probably pre.
Pre COVID-19 that was the most competitive part of the market and I think post COVID-19.
It remains so and when.
And we think about our our transaction sourcing.
And of course, we'll look at deals.
Deals that are.
Intermediate advised some some broker or somebody representing the company and of course, we you know we go out and do we have for our own deals and then you know through Arbor from you know kind of our network is our folks and the industry. Yeah, we get deals from there as well and I think I will say if you look at the.
The last handful of deals that we've we've executed that they've really been transactions that have come from our internal efforts.
And from outreach and and our and our network and so we're of course, we're looking at some of the you know the broker transactions that are out there and involved will participate to the extent that.
Makes sense for us, but yeah I think we think that's one of the ways. We've been very effective and continue to find attractive opportunities. As you know it was by just doing are doing the hard gumshoe work. If you will to you to go to go find good good opportunities.
Good so they're there.
And the competition out there and there's there's a lot of investors that find our space interesting, but but I think also the unique skill set that's required and really understand the.
The intricacies of the.
Other regulatory and intellectual property matters that you know that we really diligence on a day to day basis.
And does provide us with a pretty interesting boating and I think there's.
It's about reasons why we continue to be pretty excited about what.
What we see going forward.
That's great well I appreciate you, taking my questions and I'll jump back in queue here.
Hey, Scott I appreciate the questions too.
Okay.
Once again, if you have a question. Please press Star then one.
The next question comes from Michael Diana with Maxim Group. Please go ahead.
Okay. Thank you and Mike and Mike how are you.
Fine thanks.
So more and more on specialty and somewhat what you were just talking about so.
The good news bad news on making good loans and specialty finances.
And good loans and they get repaid [laughter] I'm and two good companies and seemingly is what's happened and partly in the second quarter. So I guess based on what you disclosed for the second quarter Youre, one origination you to take out.
That would put you down about 13 million and tank and the AR and the second quarter for the size of the portfolio. So just I know, obviously, you can't predict what happens quarter by quarter, but for the year or do you expect portfolio growth.
And you know and and.
And into next year as well.
And I appreciate the question, Mike very very astute and really the yeah. The driver of a burning desire for sure yeah. So.
Yeah, the answer depends in part on ultimately the size of the credit facility that we were able to you know to execute them.
The 20 million revolver that we've had courses it's worked out fine, but it is really insufficient and that relative to the size of the portfolio, particularly having kind of dry capacity for unfunded commitments.
And where we're really center size so.
And if we're if we're successful getting you know something and that would be a 40 or 50 or $1 billion range. Then I think we will well.
We'll be much better positioned for youll be able to grow those portfolio and.
In terms of getting our portfolio back to being fully invested.
And I certainly believe that we can do that.
This year, but you know in terms of growing it.
We'll of course have done.
You have a larger facility.
And I guess that that said, what we you know we will have the cash flow from the portfolio that you're keeping investing but the but the meaningful meaningfully move the portfolio up it's going to depend on an upsized facility and any other.
Capital strategies that our strategic review committee, perhaps is able to help us identify and execute.
But yeah to the extent that we do have additional capital while I am confident a little be able to grow the portfolio through year end and into next year.
Okay, great. Thanks.
Appreciate it Mike.
Once again, if you'd like to ask a question. Please press Star then one.
And Ken pressing Star then one and will allow you to ask a question.
And the next question is from Scott Johnson, a private Investor. Please go ahead.
Hey, good morning nice.
Nice quarter again, and thank you questions are first have you guys now have thought about.
Reinstating the buyback and.
And the second would be that Tara has been very adamant and after this last data to move into phase three and four oral consumed by the end of 2021.
Do you get a milestone when they file or do you have a milestone at all for that phase and how does it compare to like a phase two.
Hey, Matt.
Sure I appreciate the questions.
First on the buyback yeah.
I agree I would love for us to put one in place and the company has really not been in a position to be able to pull that and place.
Given the special committee that will be a process that has been going on.
That's the I D.
Now that we have a break and I think that's something definitely that we are going to be evaluating if we can we can legally put it in place as.
And as quickly as possible and I definitely agree with that.
And it takes that were able to buy stock below book value. It remains a great ways to deploy capital for you on behalf of our investors.
Ed.
If we're not we're not buying from them from Carlos I'm, just trying to want to.
Keep increasing their concentration of ownership so if there's a little bit of Oh.
And the Goldilocks.
Cash solution, if you will and sort of the that we can buy back.
And for prudent perspective, but from a allocation of capital I totally agree that it's at.
And this.
Great for us to do and we're definitely looking at it.
On the on the care side.
Yeah.
And I really wish that these milestones where we're public out there. So we could we could talk a little more freely about them.
And maybe just I know, it's frustrating for you guys and it's frustrating for me as well.
Yeah, because that's really what would love to kind of say yeah. They do this we're going to get this and they do that and we can get.
And then get y.
But yep.
I think what I can say is that the agreement is very typical.
Sure.
And then out license the technology out license agreement, where there are milestones that are related to pre approval.
Our efforts and successes and then.
And of course, but once and assets approved and commercialized there.
And just royalties and you know this.
And milestones that are associated with that.
Yeah. So that's the that's probably the best I can do that to help out with that but yeah I think yep.
And given their their progress.
Youll.
You'll you'll see whether or not.
We get mouser and associated with the you know at the end of.
The meeting and and and there and.
And they're starting phase III and.
And so on and so forth.
As you know.
And he goes on but we're very pleased with their progress and I think.
The other day.
There advancements continue to de risk the Pep Pep Telegent technology.
Okay, Great and then one final one and that is on route and their attempt.
Cause sell their female health care division share it hired Morgan Stanley.
And it appears from the documents that you average you would have to give approval.
Is there any reason you would not want them to sell that business.
And the you're you're right that we would have to approve it and we stuck around but yeah that would be.
The important thing to note is that the agreement is public. So you can go read it but yes, but they essentially have to have to buy us out on a change of control and there's two components to the transaction and you know theres a synthetic royalty that we get today.
Call it.
Roughly 20%, there's a couple of tears and and and its other debt.
Areas over time.
Throughout the year, but the.
Yeah, and so what we get that until we've received a COVID-19 of 1.7 and 625 times you know Baltimore of our invested capital and so there we're working through that and.
And amazed maybe and positioned to hit that this year.
Early next year, it really depends on how and how much how quickly that product continues to grow and which has been a fantastic grower.
And then the second component of the deal as a you know it was a 5% residual royalty and two to take that royalty out we basically get five times the L T and yep.
And five times, the amount and royalty or five times, 5% times LTM revenue. So your audit and a change of control that that there'll be a fairly material paint.
Payment for Us, which I think if and when you when you look at it compared to where it Sparks a day in the quarter right. So.
It's a it would be a.
Central gain over that.
Great. Thank you for that.
And you'd have to go to work.
Yeah.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the wisdom black for any closing remarks.
Thank you I appreciate that and closing and I appreciate everyone's time and attention and look forward to future updates as we continue to advance us to educate holdings and I'd also like to extend my sincerest wishes of good health to all.
Be well.
Thank you Sir.
And it has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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