SWK Holdings Corp (SWKH) 2025 Q1 法說會逐字稿

Good Day, everyone. Welcome to the SWK Holdings First Quarter twenty twenty five Conference Call. At this time, all participants have been placed on a listen only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Susan Xu, Investor Relations. The floor is yours.

Thank you, Kelly. Good morning, everyone, and thank you for joining SWK Holdings first quarter 2025, Financial and corporate results call. Yesterday, SWK Holdings issued a press release detailing its financial results for three months and then March 31, 2025. 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.

Today we will make 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. Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk 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 Staggs, President and CEO, and Adam Rice, CFO, who will provide an update on SWK's first quarter, 2025 corporate and financial results. Jody, you may go ahead.

Thank you, Susan, and thanks everyone for joining our first quarter conference call. We are pleased with STBK's first quarter performance headlined by strong financial segment profitability as well as the successful monetization of the majority of our royalty portfolio.

First quarter SWK highlights include $8.6 million of finance segment adjusted Non-GAAP net income, bringing the trailing 12 month total to $26 million.

A new $15 million dollar financing to an innovative life science company and continued partnership advancement between our Mod three pharma division and its strategic partner.

Our Non-GAAP tangible financing book value per share grew to $21.73 achieving our stated goal of 10% year over year growth.

Mod three adds an additional $0.38 per share of tangible book value, bringing our total tangible book value per share to $22.11. Pro forma for the May 2025 $4 per share special dividend. Our total tangible book value per share was $18.11 Year-to-date we have repurchased $1.1 million of our shares, and with the stock trading at a discounted book value and given our excess capital, I expect the board will authorize a new share repurchase program in coming days.

At March 30, 2025, our gross finance receivables portfolio consisted of approximately $220 million of performing first lien loans and $13 million in non-accruals against which we have a $9 million CECL reserve, bringing net financial receivables to $224 million and that is pro forma for the sale of the royalty portfolio.

We also hold $5 million of public equities and warrants as well as private warrants and post-workout contingent economic interests carried at zero on our books.

Finally, gross gross cash as of today totaled approximately $22 million and a revolving credit facility is undrawn.

At March 30, 2025, the financial receivable portfolio had an effective arm model yield of 14.5%. So if the portfolio repays as modeled, it should generate approximately $32 million of annual interest income.

We are pursuing additional financing, including upsizing existing performing borrowers as well as agreements with new partners.

The market for high quality borrowers remains competitive, and we will pick our spots to maintain a high quality portfolio that can earn a mid-teens return.

We believe the portfolio remains strong and the most recent credit score reached an all-time high. As a reminder, we rank our portfolio from one to five with 5 the highest score.

At March 30 first, we had the three non-accruals totaling $13 million and $0.02 two rated credits totaling roughly $20 million.

The two rated credits are bold accrual, and we're in regular conversations with bolt borrowers.

We continue to monitor the ongoing health care and general economic regulatory changes, and at this time we don't believe any of these changes pose outsized risks to our portfolio.

Turning to how we are thinking about the pro forma finance segments go forward economics, as previously mentioned, the current portfolio should generate approximately $32 million of interest income if it repays as modeled.

On the expense side, we are targeting targeting approximately $8 million of normalized annual opEx.

The bond interest expense totals $3 million and our revolver carrying cost is approximately $500.

So a reasonable target is approximately $20 million in the finance segment adjusted Non-GAAP net income based on the current portfolio size. To be clear, this is not guidance and does not consider impairments, early payoffs, warrant gains, and normal ops, additional deployments, etc.

And it is really just intended to provide a framework for how to think about go forward profitability.

Turning to our Mod 3 CDMO division, first quarter segment revenue was $1 billion and segment I was a loss of $50,000.

During the quarter, we received a $1.8 million dollar option fee from our strategic partner, which is carried in deferred revenue. The partnership remains strong with both sides collaborating to grow the business. Our team at Mod three is also working to monetize non-core IP. With that, I will turn the call to our CFO Adam Rice to review the quarter's financial results.

Thank you, Jody, and good morning everyone.

Yesterday we reported earnings for the first quarter of 2025. We reported GAAP pre-tax net income of $5.8 million or $0.48 per diluted share.

Our reported first quarter 2025 net income is $4.5 million after income tax expense of $1.3 million.

This includes the $300,000 decrease in finance receivable segment revenue.

And a $700,000 increase in pharmaceutical development segment revenue.

The $300,000 decrease in year to year finance receivable segment revenue was primarily due to a $2.4 million dollar decrease in interest and fees earned due to partial paydowns and payoffs.

The decrease was largely offset by a $2.1 million dollar increase in interest and fees earned due to add on fundings and newly funded finance receivables.

The previously mentioned pay down in funding activity is typical as SWK continually manages return of capital and capital deployment.

As of March 31, 2025, our GAAP book value per share was $23.94 a 6.8% increase compared to $22.42 as of March 31, 2024.

Additionally, Non-GAAP tangible book value per share totaled $21.73 as of March 30, 2025.

A 10.5% increase compared to $19.66 as of March 31, 2024.

Overall operating expenses, which include interest, pharmaceutical manufacturing, research and development expense.

General and administrative expense and provision for credit losses were $3.7 million during the first quarter of 2025 compared to $10.3 million in the first quarter of 2024.

Mod three operating expenses were $1.5 million in the first quarter of 2025, compared to $1.7 million in the first quarter of 2024.

In finance receivable segment operating expenses were $2.2 million in the first quarter of 2025 compared to $8.6 million in Q1 of 2024.

The finance receivable operating expenses further break down for the first quarter of 2025. The general and administrative expenses of $2.6 million, provision for credit losses, in this case a gain of $1.5 million.

And interest expense of $1.1 million. And for the first quarter of 2024, general and administrative expenses of $2 million provision for credit losses of $5.3 million and interest expense of $1.3 million.

The decrease in finance receivable segment operating expenses was mainly due to a $6.8 million dollar decrease in provision for credit losses.

The decrease in provision for credit losses is most notably attributed to $1 million dollar.

$1 million of asset impairments in the first quarter of 2025 versus $6 million of asset impairments in Q1 of 2024.

Turning to our share repurchase program, we bought back approximately 52,000 shares at a total cost of $900,000 during the quarter, and since quarter closed, we have repurchased an additional 11,000 shares for a total cost of $200,000. With that, I'll turn it back over to Jody.

Thanks Adam. We are pleased with our first quarter results and believe we are positioned for a successful 2025. We have simplified the business and are focused on earning an appropriate return on our equity capital. The management team aboard are focused on achieving value for our shareholders.

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

(Operator Instructions).

We have a question coming from Scott Jensen. Please pose your question. Your vine is live.

Good morning, and congratulations Jody to you and the team. Great progress, again, and thank you for the special dividend, return of capital. It was great. I guess my first, question is, on those, you mentioned the, two, that scored a number two on your credit, the $20 million. Are those loans or are those royalties or is it a combination?

Yeah, those are both loans, so we have three non-accruals are post reorg royalties is how I'll define them, and those are situations where we've taken them through some type of process and really we're just largely passive check collectors at this point in time. The two loans are still firstly in term loans that, where we have the full lien covenants, etc.

Okay, excellent, and I just, congratulations on seeing some of these big upsize borrowers Eton Journey, both have. Yeah, I wish I owned both the stocks this week, and I'm glad that you at least have equity warrants on Eaton or Eton.

That's pushing 20% and Durham up 19% yesterday, and they have an at the market offering open so they can keep raising, capital, and they've got a pretty good cash balance. So congratulations seeing those borrowers performing well.

So, when we, when you talk about competition out there, clearly there's a lot of focus on private credit and other people. Are you seeing people just in the space in general?

Leaking into your space or are you at the size where it doesn't really, benefit them the clients that you're you Talk to?

Yes, so I think our space is still very interesting, the kind of $10 to $25 million dollar space, and, but there, there's other folks in our space, and you know you can imagine some of these, some of the name, the types of names that you mentioned, those people are going to get hit up to reply, to reprice. I mean those are big enough to definitely catch people's attention. So you know we've got to really be good partners, be proactive in those situations and a new names.

Howard Frame it, if it's a $20 or $25 million dollar loan that's just obvious, obviously over collateralized, there's going to be folks around that. So we have won some of those. We have to really be creative and thoughtful with the proposals and show excellent customer service, and then we need to find some of the tens and 15s that maybe aren't quite as obvious on day one, to, where we feel, hey, look, it fits our underwriting criteria. We're underwriting to a sub 40% LTB, we feel like this is a low, not an equity piece, but maybe it's not just so obvious where you can just sort of say, look, this is a $200 million dollar market cap and you know they've got a bid on the company and it's a no brainer if that makes sense.

Right? Yeah, no, it does, and so when you talk about like tangible book and I, you look on your 10s or cases and you see things like, to be determined like molecular li, it says, you might have some warrants that was a really interesting company. I, I'm not surprised they paid you back.

How are those things or zebra if you get CVR rights like are those just carried at zero, like a lot of things. So yeah, my point being that there's, there can be both up and downside. It could stay at 0, but there's potential that some of that stuff could, help cover up when challenging times arise. Is that kind of how I should read those sets or potential assets, warrants.

Yeah, that's right. So I've got the file pulled up here. We have 12 discrete.

Instruments I'll call them that are either private warrants or you know we've got, you mentioned the CVR, we've got a couple of reorg tail payments. Those are all carried at zero and some of them are not going to be worth anything, but they're I think they are worth more than zero. There's a couple of those that could be pretty interesting.

The challenge is a, you know, these private companies until they sell, you really don't know what they're worth. So I think it's just a fool's errand to try to value them like we probably would spend $1000 a year on stuff, so we carry those at zero, and then.

Some of these will work out, some of them won't, but yeah, we do think there is some value there and again those are all carried at zero, and then the other thing, and we haven't talked much about this, and again this is not a huge piece of value, but we do have a couple of pieces of IP at.

Mod three terrorists actually, well, the current Mod three

that yeah

would fall outside the APA of the purchase option agreement that you know we've said is out there. And there's a couple of interesting things there. Can we find a way to get something for those? I don't know, and I doubt it would be a big chunk up front, but, maybe there's some t payments there as well. So yeah, to your point, there's some of the portfolio, there's always some risk there and, versus versus how we think things play out, but there's also, there's a number of things marked at zero on our books where there could be some upside too.

Okay, awesome.

Thank you. I'll get out of the queue and congratulations again. Nice.

(Operator Instructions).

You have a question from [Davana Ladaby with Canal]. Please pose your question. Your line is live.

Hey, is this for me, Stefano?

Hey Stefano.

Hey, how are you, Joey?

Good. Thanks for the question.

Of Course. So what is the best use of capital at this point for you guys?

Yeah, great question. That kind of is the question. Look, we're kind of mentioned the pro form of book values, tangible book values, 1811 and laid out where there could be some upside. So I think it's buying back stock is really interesting here, we know the portfolio, we can buy into a.

Situation that we know that's diversified, so I think that's a great use of capital for us.

We of course have a fair amount of ex excess capital to do that, and I don't think that we're in a position to use all that capital on that. So that would be one I think we should do.

We did pay the special dividend. I think that shows that the board is open to that, and at this time there's there's nothing else like that plan, but I think the board showed you that they'll do that and so that could be a use.

And the third I think is, selective additional loans, really. Keeping kind of right in our in our sweet spot to make sure we've got a portfolio that is stable to maybe modestly growing, that is sort of somewhat homogeneous and that it's easy for everyone to see that hey look, this is valued what we say it's valued at it should trade there. So I mean I think it's kind of those those three things it's pretty pretty simple.

Thank you, Jordan. One more in terms of, possible loans you can do in here, how would you compare the current situation and the current pipeline of possible loans versus, let's say, sequential quarter over quarter and last year? Do you think it has improved? There are more opportunities, the same.

Yeah, if you'd have asked me two months ago, I would have said, wow, it's actually really pretty interesting. I want to pulled back.

There was a little bit of fear, we've kind of in 60 days switched to, okay, that's a little bit more animal spirits have pulled back in, so. The pipeline is probably, I would say roughly the same as it's been over the past year. It's not, I'll call it neutral. It's not extremely attractive like it might have been 75 days ago, 60 days ago, but there are still some opportunities, particularly in our neck of the woods where you know some of the smaller companies still have a hard time getting capital. So I would call it kind of neutral over the past 12 months and maybe modestly worse opportunities that sequentially given that we've we've kind of moved away from some of the fear around the.

Tariffs.

Okay, thank you, Jody.

Thank you for taking my question.

Absolutely, thank you.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Jody Staggs for closing remarks.

Hey, great, thank you for joining the call.

Thank you for the questions. Adam and myself will be around today. Feel free to call if you have any questions and just to to say it, if anyone, if anyone does have blocks that they want to talk about as it relates to capital allocation, please call myself or Adam, happy to take those calls and discuss it with you. Hope everyone has a great Friday. Bye bye.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day.

Thank you for your participation.