SWK Holdings Corp Q1 FY2025 earnings call

• SWK Holdings is pleased with first quarter performance, featuring strong financial segment profitability and successful monetization of majority royalty portfolio.
• $8.6 million of finance segment adjusted non-GAAP net income in first quarter, with trailing twelve-month total at $26 million; $15 million financing to an innovative life science company; continued partnership advancement between Mod Three Pharma division and its strategic partner.
• Non-GAAP tangible financing book value per share grew to $21.73, achieving 10% year-over-year growth; Mod Three adds $0.38 per share of tangible book value, total tangible book value per share $22.11; pro forma for $4 per share special dividend, total tangible book value per share $18.11.
• Year to date, repurchased $1.1 million of shares; board expected to authorize new share repurchase program. Gross cash as of March 31, 2025, totaled approximately $22 million, revolving credit facility undrawn.
• Mod Three Q1 revenue $1 million, segment EBITDA loss $0.5 million, received $1.8 million option fee from strategic partner.
• GAAP pretax net income $5.8 million, diluted share $0.48; GAAP book value per share up 6.8% Y/Y; non-GAAP tangible book value per share up 10.5% Y/Y. Operating expenses $3.7 million Q1 2025 vs $10.3 million Q1 2024. Finance receivables operating expenses decreased due to $6.8 million decrease in provision for credit losses.

Finance Segment

• First quarter adjusted non-GAAP net income was $8.6 million, with trailing twelve-month total at $26 million. Gross finance receivables portfolio consisted of approximately $220 million of performing first lien loans and $13 million of nonaccruals, with a $9 million CECL reserve, bringing net finance receivables to $224 million. The financial receivable portfolio had an effective or modeled yield of 14.5%, which could generate approximately $32 million of annual interest income if repaid as modeled. Targeted normalized annual OpEx for finance segment is approximately $8 million, with bond interest expense $3 million and revolver carrying cost ~$0.5 million, leading to a reasonable target of approximately $20 million in finance segment adjusted non-GAAP net income.
• Revenue Contribution: Finance segment is the primary contributor, with its performance driving overall results.

Mod Three CDMO division

• First quarter segment revenue was $1 million, and segment EBITDA was a loss of $0.5 million. During the quarter, received a $1.8 million option fee from strategic partner, carried in deferred revenue.

• The finance segment's current portfolio could generate approximately $32 million of annual interest income if repaid as modeled. Targeted approximately $20 million in finance segment adjusted non-GAAP net income based on current portfolio size (not official guidance).
• Board expected to authorize a new share repurchase program in the coming days.

• Monitoring ongoing healthcare and general economic regulatory changes, currently no outsized risk to portfolio.
• Competition in the high-quality borrower market for private credit, which could impact portfolio selection.

Q: Are the two loans that scored a number two on the credit, totaling $20 million, loans or royalties?

A: Those are both loans, first lien term loans with full lien covenants, etc.

Q: What is the best use of capital at this point?

A: Buying back stock is interesting, as the portfolio is diversified; they paid a special dividend showing board's openness to that; and selective additional loans in their sweet spot.

Q: How is the current pipeline of possible loans versus sequential quarter over quarter and last year?

A: Pipeline is roughly the same as past year, neutral, not extremely attractive compared to earlier months but still some opportunities as smaller companies still have hard time getting capital