SWK Holdings Corp Q4 FY2023 earnings call

Achieved Goals

• Investment team: Consists of 6 highly motivated credit professionals, the largest and most experienced team ever, with 2 support colleagues, and expecting to replace the CFO position in 2024.
• Balance sheet capital: Secured and expanded a new ABL facility totaling $60 million and raised a $33 million unsecured baby bond, with approximately $50 million of liquidity to pursue core SWK life science finance opportunities.
• Enteris: Announced an agreement with a strategic partner that positions Enteris CDMO operations to generate potentially breakeven or better profitability and may lead to the sale of certain tangible assets at a premium to book value. The agreement also reduces cash burn at Enteris and allows SWK to prioritize the core specialty finance business.

Stock Repurchase

• Repurchased approximately 14,000 shares of stock for $200,000 in the fourth quarter of 2023, and year-to-date through March 19, 2024, repurchased an additional 51,000 shares for a total cost of approximately $900,000.

Portfolio Activity

• Closed 4 transactions committing $60 million of capital with $55 million of deployment in the fourth quarter, including 3 senior secured loans and deployment to purchase sales-based milestones related to a portfolio of immune globulins.

For the fourth quarter of 2023, the financial receivables generated $3.7 million of adjusted finance segment net income. For the full year of 2023, the segment generated $24.4 million of adjusted segment net income, which is a 10% adjusted return on the tangible finance book. As of 12/31/2023, the gross portfolio of life science finance receivables totaled $288 million, an all-time high. This portfolio consisted of $212 million of performing senior secured term loans to 16 parties, $51 million of royalties to 7 entities, and $26 million of nonaccrual instruments to 5 parties. Additionally, there were approximately $2 million of warrants from public companies and warrants or CVRs for 12 private companies carried at zero on the balance sheet.

Forward-looking Statements

• Still focused on the goal of doing a JV or finding partner capital. The goal last year was to get ready to grow, and in 2024, continues to be interested in pursuing JV and third-party capital opportunities. Bullish about prospects in 2024 given increased finance receivables portfolio, availability to fund new deals, and continued demand for customized loan and royalty products targeting innovative life science companies.

Risks

• Actual results may differ materially due to risks and uncertainties, including those detailed in the Risk Factors section of SWK Holdings' 10-K filed with the SEC and other filings with the SEC from time to time.

Q: Just wanted to get a high-level read on the overall market. How do you see the overall book in the environment right now in terms of the books' access to capital or some of your lended clients, their access to capital right now in other forms. And then overall, kind of the pipeline how do you feel like you're positioned here in terms of the ability to put more capital to work over the near term?

A: Yes. It's interesting, 6, 7, 8 months ago, everyone was afraid to do deal sitting on their hands and of course, with S&P and Bitcoin and those things hitting all-time highs, but folks are doing deals more frequently and folks are able to access capital. Our portfolio is made of companies that are commercializing products and need to raise money, and this environment is better for them. We've had a couple of companies raise money and others raising money with better reception than 9 to 12 months ago. In terms of the pipeline, we still have a solid pipeline in our segment of the market with a lot of deals where we're hunting and hope to close. The last sort of 3 months, we've had a handful of deals that we thought would close like good solid core SWK life science deals, though some ended up taking equity or getting outbid, but there's still plenty of things for us to do out there.

Q: In terms of from a strategic perspective, are you still focused on the opportunity to do a JV or find partner capital. Anything changed now as you're kind of a quarter into the new year in terms of the strategy?

A: Yes. We still would like to do that. The goal last year was to get ready to grow, get the team ready to grow, and have the machine down. We still are interested in doing a JV or finding partner capital, and the Board is pushing us hard to find something there in 2024.