Q4 2024 SWK Holdings Corp Earnings Call

Greetings

Welcome to the SWK Holdings 4th quarter 2024 conference call.

At this time, all participants are in a listen-only mode [inaudible]

A question and answer session will follow the formal presentation, but if you want you to require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Susan Zoo, Investor Relations, you may begin.

Thank you. Good morning, everyone. And thank you for joining SWK Holdings' fourth quarter 2024 financial and corporate results call. Yesterday, SWK Holdings issued a press release detailing its financial results for the three months ended December 31, 2024.

The press release can be found in the Vesta Relations section of SWKhold.com under news releases. Before beginning today's call, I would like to make the following statement regarding

These statements are based on our current expectations and you should not place undue reliance on these statements.

Actual results may defer materially due to our risks and uncertainties, including those details in the risk and uncertainties factor section of SWK Holdings 10K, 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 Stags, President and CEO and Adam Rice, CFO , who will provide an update on SWK 4th quarter, 2024 corporate and financial results. Jody, go ahead.

Jody Staggs: Thank you, Susan, and thanks everyone for joining our fourth quarter conference call.

Jody Staggs: We are pleased with SWK's fourth quarter performance and the company enters 2025 on solid footing.

Jody Staggs: Our non-GAAP tangible financing book value for share increased 8% year-over-year to 21-15 and was shared training at a discounted book and given our excess capital, we have been active purchasers of our shares and having repurchased approximately 100,000 shares for 1.6 million since September 30th, 2024.

Jody Staggs: During the fourth quarter, we closed an up to $8 million seems to occur, turned loan to triple ring technologies, up size the loan to $30 million, and advanced a cumulative $10.6 million to four performing borrowers.

Jody Staggs: In January , we closed an up to $15 million term loan with a petamad with $10 million

Jody Staggs: These are all core STBK financing to commercial stage life science companies. Each is either public and is demonstrating the ability to raise capital or private with a supportive sponsor.

Jody Staggs: in December , verimade a $4.2 million payment to fully satisfy the FC2 loyalty.

Jody Staggs: The FT2 Royalty Generated a 45% IRR and a 2.7X MOIC.

Jody Staggs: In December , molecularite made a final payment totaling $12.2 million to repay its term loan to SWK.

Jody Staggs: The molecular light term load generated a 20% IRR and a 1.6 MOIC

Jody Staggs: SWK continues to hold equity in molecularite, which is carried at zero on our books.

Jody Staggs: In March, ANI formula made a $17.25 million dollar payment to exercise an option to buy out the Alluvian royalty.

Jody Staggs: The Illuvian Rural Teach Generated at 20% IRR and at 1.8x M-O-I-C.

Jody Staggs: At December 31, 2024, we had $13.8 million of gross financial receivables on non-accrual. The non-accrual receivables have a 15% cease reserve, thus our net non-accrual totaled $11.7 million.

Jody Staggs: This morning we announced the signing of a transaction to sell a remaining performing royalty portfolio for $34 million. The deal is expected to close in approximately two weeks.

Jody Staggs: In combination with the Alluvian Buyout, the $51.3 million approach eats from the two monetization transactions is approximately $1.1 million more than the caring value at December 31, 2024.

Jody Staggs: Upon closing of the transaction, we also expect to close out a Japanese yen hedge which will free up an additional $4.5 million of cash

Jody Staggs: Proformer for these changes, as well as a $3 million principal repayment from Fort Webb in the first quarter of 2025, and using the 12-31-2024 balances.

Jody Staggs: Our Go Forward gross portfolio consists of approximately $218 million of performing loans, $14 million of amount of cruells, and approximately $5 million of equities and warrants.

Jody Staggs: This figure is not adjusted for the post-quarter changes, but should be in the neighborhood of the GoFord portfolio yield even considering the royalty sale.

Jody Staggs: Finally, as of yesterday, our cash totaled over $30 million and we have no borrowings under our revolver Assuming closing of the final royalty transaction and release of the FX hedge our gross cash will total nearly $70 million for $70 million.

Jody Staggs: We anticipate the board will declare a dividend on the closing of the final world he transaction.

Jody Staggs: Turning to our Terra CD-MO division, which has been rebranded as Mod 3 Forma to signify its transformation into a pure place CD-MO business.

Jody Staggs: We are in regular contact with our strategic partner and believe they are pleased with Mod 3's performance.

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

Thank you, Jody. Good morning, everyone.

Yesterday we reported earnings for the fourth quarter of 2024.

Jody Staggs: Re-reported GAPP pre-tax net income of 8.6 million or 70 cents per diluted share.

Jody Staggs: A reported portfolio of 2024 net income of $5.9 million after income tax expense of $2.7 million included a $1.1 million increase in finance receivable segment revenue and a $1.3 million increase in pharmaceutical development segment revenue.

The Accelerated Fees on Early Payoffs.

Jody Staggs: 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-acool status this year.

As of December 31st, 2024.

Jody Staggs: Our Gap Book Value per share was $23.45, a 5% increase compared to $22.33 as of December 31, 2023.

Additionally, don't get up tangible finance.

Jody Staggs: Book value per share totaled $21.15 as of December 31, 2024, an 8.3% increase compared to $19.53 as of December 31, 2023.

Overall Operating Expenses [inaudible]

Jody Staggs: which overall operating expenses, which include interest expense, pharmaceutical manufacturing, research and development expense, general and administrative expense, and provision for credit losses, or $6.6 million during fourth quarter of 2024.

Compared to 6.8 million and 4th quarter 2023 2003.

Jody Staggs: Mod 3 operating expenses were 1.6 million and fourth quarter 2024 compared to 1.8 million and fourth quarter 2023.

Jody Staggs: and Finance Receivable Segment Operating Expenses were 5.3 million in fourth quarter 2024, compared to 5.6 million in fourth quarter 2023.

The Finance Receivable Operating Segment

Expenses, further breakdown.

Jody Staggs: for fourth quarter 2024 to general and administrative expenses of 2.1 million.

Jody Staggs: Provision for credit losses of 2 million and interest expense of 1.2 million and for fourth quarter 2023 general and administrative expenses of 2.1 million provision for credit losses of 2.4 million and interest expense of 1.1 million.

Jody Staggs: The decrease in finance receivables segment operating expenses was mainly due to a $400,000 decrease and provision for credit losses.

Jody Staggs: The e-crease and provision for credit losses is most notably attributed to the Strategic Act at a three-none accrual investments during the quarter.

Jody Staggs: Turning to our Share Repurchase program, we bought back roughly $50,000 shares.

Jody Staggs: at a total cost of $800,000 during the quarter. Since quarter close, we have repurchased an additional $47,000 shares for a total cost of $800,000.

Jody Staggs: to Health for Sale, as of December 31, 2024. The transition to Health for Sale status was based on criteria set forth and gap accounting guidance in as related to the option purchase agreement entered into between Mod3 and a strategic partner effective January 1, 2024.

with that I'll turn it back over to Jody.

Jody Staggs: Thank you, Adam. We enter 2025 with the Healthy Loan Portfolio, Yielding in the Midteens, as well as $30 million of gross cash.

Jody Staggs: The sale of our remaining performing royalty portfolio and close out of the FX heads will add an additional $39 million of cash to our balance sheet and we anticipate declaring a dividend on the closing of the final royalty transaction.

Jody Staggs: Our Mod 3 CDMO division is self-sufficient and working with our strategic partner to address the sizeable need for Phase 1 and Phase 2 nasal CDMO services.

With that, let's open the call to questions.

Speaker Change: Absolutely. At this time, we will be conducting a question and answer session. If you would 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. You may press star two if you'd 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 pull for questions.

Jody Staggs: Once again, please press star one if you have a question or a comment.

Scott Jensen: The first question comes from Scott Jensen, Private Investor. Please proceed.

Scott Jensen: Good morning, Jody and team. Congratulations on so much progress since the last boat.

Scott Jensen: I got a couple 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 pilots shareholder?

I would, yeah, Scott, thanks so much.

Scott Jensen: 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.

Scott Jensen: Yeah, 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, it's that could be something forward is going to consider about renewing or increasing the buyback.

Scott Jensen: Yeah, and Adam, if you have the email pulled up, I might have from Courtney. I might have you work and check how much room we have, but...

Scott Jensen: We do have room, enough room on our buyback, you know, it's been interesting trying to navigate this with our blackout period. So you know, once we go into the blackout period, the algorithm takes over and we don't really have control over how many shares are repurchased.

Scott Jensen: You know, when we're not in the blackout period, we can direct it and be more aggressive or less aggressive.

Scott Jensen: So I would say we're still active repartition of our shares. You know, we think particularly with the news we announced today, you know, shares are trading at at a 20% discount. That's an attractive use of capital.

Scott Jensen: Well, we'll continue to do that. You know, we should be out of the blackout period when we report first quarter.

Scott Jensen: The program will expire. I think it expires roughly that day. I don't, you know, we have not discussed it, but I think the board views the buy back as

Scott Jensen: and 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 Change: Excellent. Thank you. And I just also want to say congratulations on all those workouts, violates, etc. Those were excellent in cleaning it up.

and I've done a great job.

Thank you, Chad.

Speaker Change: I won't get out of queue and see if somebody else put people for good work and thank you again and love reading the progress.

Thank you. Appreciate the support.

Speaker Change: If there are any remaining questions, please indicate so now by pressing star one on your touch tone phone. Once again, please press star one if you have a question or a comment.

Speaker Change: Okay, we have no further questions in the queue. I would like to turn the floor back to Jody for any closing remarks.

Thanks, Sean.

Jody Staggs: Thank you for joining us today. If we continue support at Best of UK, real everyone has a great day. Thanks

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