SWK Holdings Corporation 9.00% Senior Notes due 2027 Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Achieved strategic goal of improving balance sheet via $33 million senior note issuance and $15 million credit facility increase to $60 million.
• Core business focuses on financing pre-profitability commercial stage life science companies, regularly communicating with borrowers about macro and capital market conditions.
• Enteris segment revenue grew, operating expenses reduced, and deepening relationship with strategic partner to improve profitability.
• Repurchased 60,335 shares for ~$1 million in Q3 2023, with year-to-date repurchases totaling 361,593 shares at a cost of $6.1 million, targeting repurchases at discount to book value.

Segment Performance

• Core Finance Business: Gross finance receivables totaled $235 million at quarter end, a 10% increase from the prior year. Portfolio effective yield was 14%, with a realized yield of 14.7% in the quarter (down from 17.5% in Q3 2022). Tangible book value per share increased to $19.35 per share, a 6% year-over-year increase after adjusting for CECL. Credit quality: 2 loans scored as 2, remaining loans rated 3 or better; one 2-rated loan (Trio Healthcare) placed on nonaccrual. Green-rated royalties account for 55% of the royalty portfolio.
• Enteris: Revenue increased 72% sequentially to $0.3 million in Q3 2023. Year-to-date, $2.7 million of CDMO projects booked, with bidding on an additional $5 million of projects. Third quarter 2023 operating expense totaled $1.2 million (down from $2.6 million in Q3 2022), and EBITDA loss was $900,000 (improvement from $2.5 million loss in Q3 2022).

Guidance

• Anticipate 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.
• Focus on prudently deploying recently raised capital in attractive loans and royalties while working with current portfolio partners to navigate challenging business environment.

Risks

• Credit quality risk: One loan (Trio Healthcare) placed on nonaccrual, working with management for resolution.
• Macro and capital markets conditions risk: Impact on borrowers' ability to raise capital and manage costs.
• Royalty rating risk: Some royalties rated red/yellow, with green-rated royalties accounting for 55% of the portfolio.

Q: On buyback, who to contact for selling blocks?

A: Tell them to call Jody, who can put them in touch with the broker (Jones).