SWK Holdings Corp Q3 FY2023 earnings call

• Core finance business generated healthy returns, while Enteris subsidiary grew revenue, reduced costs, and moved closer to profitability. - Achieved the strategic goal of improving the balance sheet via issuance of a $33 million senior note and a $15 million increase in credit facility to $60 million. - Has over $60 million of liquidity to deploy into an attractive opportunity set. - Is buying back stock at a discount to tangible book. - Regularly communicates with borrowers to address challenging macro and capital markets conditions. - Enteris subsidiary has reduced operating burn and is deepening relationship with strategic partner.

Core finance business: Gross finance receivables totaled $235 million at quarter end, a 10% increase from the prior year. The portfolio effective yield was 14%, and the realized yield in the quarter was 14.7%. Credit quality: 2 loans were scored as a 2, with the remaining loans rated 3 or better; one of the 2-rated loans, financing to Trio Healthcare, was placed on nonaccrual. Royalties: 3 nonaccrual royalties were rated red, 2 were yellow, and the remaining royalties were green, with green-rated royalties accounting for 55% of the royalty portfolio. Enteris: Revenue increased 72% sequentially to $0.3 million in the third quarter, with year-to-date booked $2.7 million of CDMO projects and bidding on an additional $5 million. Third quarter 2023 Enteris operating expense was $1.2 million compared to $2.6 million in the third quarter of 2022, and Enteris EBITDA loss was $900,000, an improvement from a $2.5 million loss in the third quarter of 2022. Tangible book value per share increased to $19.35 per share, a 6% year-over-year increase after adjusting for the implementation of CECL.

• Anticipates finance receivables revenue to slightly increase in Q4 2023 due to addition of one term loan during the quarter and 2 additional term loans subsequent to quarter end. - Expect strong revenue growth in Enteris for the fourth quarter.

• Challenging macro and capital markets conditions that borrowers are facing. - Loan to Trio Healthcare placed on nonaccrual and working to resolve. - Royalties with nonaccrual status and certain ratings pose risks. - Capital markets conditions may impact borrowers' ability to raise capital.

Q: With all the updates like bond debt issuance and new facilities, walk us through lending capacity and deployment of capital?

A: Have over $60 million of deployable liquidity; there are multiple deals in process, and are looking to deploy capital prudently.

Q: Thoughts on dividends as an alternative to buyback?

A: The Board is always considering other ways to return capital, including dividends.

Q: How to gauge Enteris pipeline progress?

A: Track year-to-date bookings of $2.7 million; bookings will turn into revenue over 4-12 months.

Q: How to sell blocks for buyback?

A: Call Jody to be put in touch with the broker.

Q: Thoughts on pricing royalties?

A: Focus on attractive deal dynamics, do conservative underwriting, and use structures like buying with a 2x return to narrow bid-ask