SWK Holdings Corporation 9.00% Senior Notes due 2027 Q1 FY2025 earnings call

• Pleased with first quarter performance, highlighting strong financial segment profitability and successful monetization of the majority royalty portfolio.
• First quarter finance segment adjusted non-GAAP net income was $8.6 million, with trailing twelve-month total at $26 million. A new $15 million financing was made to an innovative life science company.
• Mod Three Pharma division continues partnership advancement. Non-GAAP tangible financing book value per share grew to $21.73, with Mod Three adding $0.38 per share to total tangible book value per share of $22.11. Pro forma for the $4 per share special dividend, total tangible book value per share was $18.11.
• Year to date, $1.1 million of shares were repurchased, and the board is expected to authorize a new share repurchase program. The finance receivable portfolio had an effective yield of 14.5%, and the portfolio remains strong with a recent all-time high credit score.

Finance Segment

• First quarter adjusted non-GAAP net income was $8.6 million, with the trailing twelve-month total at $26 million. The 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, resulting in net finance receivables of $224 million. The effective or modeled yield of the financial receivable portfolio was 14.5%, which could generate approximately $32 million of annual interest income if repaid as modeled. A target of approximately $20 million in finance segment adjusted non-GAAP net income is mentioned based on the current portfolio size.
• Revenue Contribution: Not explicitly stated as a percentage, but the finance segment is a key component with significant income generation.

Mod Three CDMO Division

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

• The current finance portfolio could generate approximately $32 million of interest income if repaid as modeled, with a target of approximately $20 million in finance segment adjusted non-GAAP net income based on the current portfolio size (not official guidance).
• Expectation that the board will authorize a new share repurchase program in the coming days.

• Monitoring ongoing healthcare and general economic regulatory changes, with no outsized risk currently believed to pose a threat to the portfolio.
• Competition in the high-quality borrower market for private credit, which could impact portfolio selection.
• Uncertainty in the value of private warrants and post-workout contingent economic interests until companies are sold, as they are carried at zero on the books.

Q: Scott Jensen asks about the two-rated credits being loans or royalties and competition in the private credit space.

A: Jody Staggs responds that the two-rated credits are first lien term loans, not royalties. Talks about competition in the private credit space, stating that they need to be proactive with proposals and selective with underwriting criteria to maintain a high-quality portfolio.

Q: Davana Ladaby asks about the best use of capital and the loan pipeline.

A: Jody Staggs says buying back stock, paying the special dividend, and making selective additional loans are good uses of capital. States the loan pipeline is neutral, not extremely attractive recently but still has some opportunities, particularly with smaller companies.