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SWK Holdings Corporation Announces Financial Results for Second Quarter 2024

Thursday, 15 August 2024 08:15 AM

SWK Holdings Corp.

Topic:
Earnings

Conference Call Scheduled for Friday, August 16, 2024, at 09:00 a.m. CST

Corporate Highlights

  • Second quarter 2024 GAAP net income was $4.4 million, compared with net income of $3.9 million for the second quarter 2023

  • Second quarter 2024 finance receivables segment adjusted non-GAAP net income was $6.5 million, compared with adjusted non-GAAP net income of $7.6 million for the second quarter 2023

  • As of June 30, 2024, net finance receivables were $265.5 million, a 19.0% increase from June 30, 2023

  • The second quarter 2024 effective yield was 14.6%, a 10 bps increase from second quarter 2023

  • As of June 30, 2024, non-GAAP tangible financing book value per share was $20.17, a 6.3% increase from $18.95 at June 30, 2023

DALLAS, TX / ACCESSWIRE / August 15, 2024 / SWK Holdings Corporation (NASDAQ:SWKH) ("SWK" or the "Company"), a life science-focused specialty finance company catering to small- and mid-sized commercial-stage companies, today provided a business update and announced its financial and operating results for the second quarter ended June 30, 2024.

"For the second quarter 2024, our core Finance Receivables segment reported a 15.3% increase in revenue to $10.7 million. Our finance segment generated $3.3 million of GAAP net income and $6.5 million of adjusted non-GAAP net income as strong performance from the majority of our portfolio was partially offset by a $4.1 million provision for credit losses driven by impairments on two non-accrual loans. Positive developments in the portfolio include a $2.5 million increase in the carrying value of Illuvien as a result of entering into an amendment with the marketer as well as a $0.7 million gain from the conversion of private warrants in AOTI, Inc. to common stock as the company completed an initial public offering during the quarter," said Jody Staggs, President and CEO of SWK.

Mr. Staggs concluded: "In August we closed an up to $11 million royalty financing to Relief Therapeutics. The custom solution monetized three discrete royalty streams, providing capital to Relief to advance its clinical pipeline while giving SWK a diversified stream of royalties. For the remainder of 2024 we are focused on closing similar loan and royalty financings to innovative life science partners, working with our non-accrual borrowers to achieve positive outcomes, supporting the team at Enteris as it collaborates with our strategic partner to build value."

Second Quarter 2024 Financial Results

For the second quarter 2024, SWK reported total revenue of $11.5 million, a 21.1% increase compared to $9.5 million for the second quarter 2023. The $2.0 million increase in revenue for the three months ended June 30, 2024 consisted of a $1.4 million increase in Finance Receivables segment revenue and a $0.6 million increase in Pharmaceutical Development segment revenue.

Income before income tax expense for the quarter was $5.4 million for both the three months ended June 30, 2024 and 2023. Although consistent, second quarter 2024 income before income tax expense benefited from a $2.0 million increase in consolidated revenue from interest and fees earned due to funding new loans, a $4.9 million gain from the write off of acquisition-related contingent consideration previously due under the Cara licensing agreement, and a $2.5 million gain on revaluation of Iluvien royalty resulting from an amendment signed in 2Q24, offset by a $5.8 million impairment of the Cara License intangible asset due to cancellation of the related clinical trial, a $2.1 million impairment on our Trio loan, and a $2.2 million impairment on our Exeevo loan directly recorded to the provision for credit losses during 2Q24.

GAAP net income for the quarter ended June 30, 2024, increased to $4.4 million, or $0.35 per diluted share, from $3.9 million, or $0.31 per diluted share, for the second quarter 2023.

For the second quarter 2024 and 2023, non-GAAP adjusted net income was $5.8 million, or $0.47 per share. Non-GAAP adjusted net income for the Finance Receivables segment was $6.5 million, a decrease from $7.6 million for the second quarter 2023.

Total investment assets (defined as finance receivables, marketable investments, and warrant assets less the allowance for credit losses) totaled $267.0 million as of June 30, 2024. A 19.0% increase compared with total investment assets of $224.5 million as of June 30, 2023. The allowance for credit loss at quarter's end totaled $13.1 million, an increase from $11.1 million in the second quarter of 2023.

GAAP book value per share was $22.75 as of June 30, 2024, a 4.4% increase compared to $21.79 as of June 30, 2023. Non-GAAP tangible financing book value per share totaled $20.17, a 6.4% increase compared to $18.95 at June 30, 2023. Management views non-GAAP tangible financing book value per share as a relevant metric to value the Company's core finance receivable business. Non-GAAP tangible financing book value per share removes the value of the deferred tax assets and Enteris net asset value.

Portfolio Status

SWK did not close any new financings during the quarter ended June 30, 2024 and advanced $7.0 million to existing borrowers. Subsequent to June 30, 2024, SWK closed an up to $11.0 million royalty monetization with $5.8 million advanced at close.

The second quarter 2024 realized yield was 15.4%, unchanged from the second quarter of 2023. The realized yield is inclusive of all fees, including all realized unamortized fees, amendment fees, and prepayment fees, and is calculated based on the simple average of finance receivables at the beginning and end of the period. The realized yield may differ from the effective yield due to actual cash collections being greater or lesser than modeled.

As of June 30, 2024, non-accrual finance receivables totaled $22.4 million. Of the total $22.4 million, $10.4 million consisted of a non-accrual financing originally to Flowonix Medical, $4.5 million consisted of a loan to Exeevo, $3.6 million consisted of a royalty purchase originally to Ideal Implant, and $2.4 million consisted of a royalty to Best ABT, Inc, and $1.5 million consisted of a loan to Trio Healthcare.

As of June 30, 2024, SWK had $5.0 million of unfunded commitments, and after quarter close SWK added an additional $10.3 million of unfunded commitments.

Total portfolio investment activity for the three months ended June 30, 2024, and 2023 was as follows (in thousands):



Three Months Ended
June 30,




2024



2023


Beginning Portfolio


$

262,288



$

237,787


(Provision) benefit for credit losses and impairments



(4,074

)



682


Interest paid-in-kind



904




606


Investment in finance receivables



7,000




111


Loan discount and fee accretion



1,354




454


Net unrealized gain on marketable investments and warrant assets



226




399


Warrant and equity investments, net of sales and cancellations



44




377


Fair value remeasurement of finance receivable



(1,339

)



(864

)

Principal payments received on investments



(1,703

)



(154

)

Royalty paydowns



(815

)



(988

)

Gain on revaluation of investment receivable



2,495




-


Sale of finance receivables



-




(13,942

)

Net realized gain on exercise of warrants



656




-


Ending Portfolio


$

267,036



$

224,468


Adjusted Non-GAAP Net Income

The following table provides a reconciliation of SWK's reported (GAAP) consolidated net income to SWK's adjusted consolidated net income (Non-GAAP) for the three-month periods ended June 30, 2024 and 2023. The table eliminates provisions for income taxes, non-cash mark-to-market changes on warrant assets and equity securities, amortization of Enteris intangible assets, foreign currency transaction losses, and any non-cash impact on the remeasurement of contingent consideration.



Three Months Ended
June 30,




2024



2023


Net income


$

4,395



$

3,934


Add: Income tax expense



1,035




1,454


Add: Enteris amortization expense



196




426


Subtract: Unrealized net gain on warrants assets



(226

)



(399

)

Add: Foreign currency transaction gain



(437

)



(316

)

Add: Intangible asset impairment expense (Cara License)



5,771




-


Add: Change in fair value of acquisition related contingent consideration (Cara License)



(4,900

)



-


Adjusted income before income tax (benefit) expense



5,834




5,099


Adjusted income tax (benefit) expense



-




-


Non-GAAP net income


$

5,834



$

5,099


In the table above, management has deducted the following non-cash items: (i) change in the fair-market value of equities and warrants, as mark-to-market changes are non-cash, (ii) income taxes, as the Company has substantial net operating losses to offset against future income, (iii) amortization expense associated with Enteris intangible assets, and (iv) impairment/write off of Cara license and associated change in fair value of contingent considerable payable, and (v) foreign currency gain.

Finance Receivables Adjusted Non-GAAP Net Income

The following table provides a reconciliation of SWK's consolidated adjusted income before provision for income tax expense, listed in the table above, to the non-GAAP adjusted net income for the Finance Receivable segment for the three-month periods ended June 30, 2024 and 2023. The table eliminates Enteris operating loss. The adjusted income before income tax expense is derived in the table above and eliminates income tax expense, non-cash mark-to-market changes on equity securities, amortization of Enteris intangible assets, intangible asset impairment expense, foreign currency transaction gains, and any non-cash impact on the remeasurement of contingent consideration.



Three Months Ended
June 30,




2024



2023


Non-GAAP net income


$

5,834



$

5,099


Add: Enteris operating loss, excluding amortization expense and change in fair value of contingent consideration



670




2,515


Adjusted Finance Receivable segment income before income expense


$

6,504



$

7,614


Adjusted income tax (benefit) expense



-




-


Finance Receivables segment adjusted non-GAAP net income


$

6,504



$

7,614


Non-GAAP Tangible Finance Book Value Per Share

The following table provides a reconciliation of SWK's GAAP book value per share to its non-GAAP tangible finance book value per share as of June 30, 2024 and 2023. The table eliminates the deferred tax assets, intangible assets, goodwill, Enteris property and equipment and acquisition-related contingent consideration (in thousands, except per share data):



Three Months Ended June 30,




2024



2023


GAAP stockholder's equity


$

283,204



$

273,884


Shares outstanding



12,447




12,567


GAAP book value per share


$

22.75



$

21.79











Less: Deferred tax assets, net



(27,052

)



(25,689

)

Less: Intangible assets, net



(232

)



(7,339

)

Less: Goodwill



-




(8,404

)

Less: Enteris Property and equipment, net



(4,921

)



(5,492

)

Plus: Contingent consideration payable



-




11,200


Non-GAAP tangible finance book value



250,999




238,160


Shares outstanding



12,447




12,567


Non-GAAP Tangible book value per share


$

20.17



$

18.95


Non-GAAP Financial Measures

This release includes non-GAAP adjusted net income, non-GAAP finance receivable segment net income, and non-GAAP tangible financing book value per share, which are metrics that are not compliant with generally accepted accounting principles in the United States (GAAP).

Non-GAAP adjusted net income is adjusted for certain items (including (i) changes in the fair-market value of public equity-related assets and SWK's warrant assets as mark-to-market changes are non-cash, (ii) income taxes as the Company has substantial net operating losses to offset against future income, (iii) changes in the fair-market value of contingent consideration associated with the Enteris acquisition as these changes are non-cash, (iv) intangible asset impairment expense, and (v) depreciation and amortization expenses, primarily associated with the Enteris acquisition.

In addition to the adjustments noted above, non-GAAP finance receivable segment net income also excludes Enteris operating losses.

Non-GAAP tangible financing book value per share excludes the deferred tax asset, intangible assets, goodwill, Enteris PP&E, and contingent consideration associated with the Enteris transaction.

These non-GAAP measures may not be directly comparable to similar measures used by other companies in the Company's industry, as other companies may define such measures differently. Management believes that these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends and provides useful additional information relating to our operations and financial condition. The Company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to better understand its business. Non-GAAP financial results are reported in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Further, non-GAAP financial measures, even if similarly titled, may not be calculated in the same manner by all companies, and therefore should not be compared.

Conference Call Information

SWK Holdings will host a conference call on Friday, August 16, 2024, at 9:00 a.m. CST, to discuss its corporate and financial results for the second quarter 2024.

Interested participants and investors may access the conference call telephonically by dialing either:

  1. 888-506-0062 (U.S.)

  2. 973-528-0011 (International)

  3. Participant Access Code: 282310

An archive of the webcast will remain available on SWK Holdings' website for 12 months beginning at approximately 11:00 a.m. CT, on August 16, 2024.

About SWK Holdings Corporation

SWK Holdings Corporation is a life science focused specialty finance company partnering with small- and mid-sized commercial-stage healthcare companies. SWK provides non-dilutive financing to fuel the development and commercialization of lifesaving and life-enhancing medical technologies and products. SWK's unique financing structures provide flexible financing solutions at an attractive cost of capital to create long-term value for all SWK stakeholders. SWK's solutions include structured debt, traditional royalty monetization, synthetic royalty transactions, and asset purchases typically ranging in size from $5.0 million to $25.0 million. SWK also owns Enteris BioPharma, a clinical development and manufacturing organization providing development services to pharmaceutical partners as well as innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform. Additional information on the life science finance market is available on the Company's website at www.swkhold.com.

Safe Harbor For Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as "believes," "expects," "anticipates," "intends," "estimates," "plan," "will," "may," "look forward," "intend," "guidance," "future" or similar expressions are forward-looking statements. Because these statements reflect SWK's current views, expectations and beliefs concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption "Risk Factors" and elsewhere in SWK's Form 10-K, Form 10-Q and Form 8-K filings with the Securities and Exchange Commission and as otherwise enumerated herein, could affect the Company's future financial results and could cause actual results to differ materially from those expressed in such forward-looking statements. The forward-looking statements in this press release are qualified by these risk factors. These are factors that, individually or in the aggregate, could cause the Company's actual results to differ materially from expected and historical results. You should not place undue reliance on any forward-looking statements, which speak only as of the date they are made. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise .

For more information, please contact:

Investor Relations and Media
Ira M. Gostin
[email protected]

SWK HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)



June 30,
2024



December 31,
2023


Assets:







Current assets:







Cash and cash equivalents


$

5,549



$

4,503


Restricted cash



-




733


Interest, accounts receivable and other receivables, net



7,384




4,729


Other current assets



1,859




1,904


Total current assets



14,792




11,869











Finance receivables, net of allowance for credit losses of $13,083 and $13,901 as of June 30, 2024 and December 31, 2023, respectively



265,470




274,504


Collateral on foreign currency forward contract



2,750




2,750


Marketable investments



731




48


Deferred tax assets, net



27,052




28,290


Warrant assets



835




1,759


Intangible assets, net



232




6,487


Property and equipment, net



5,008




5,438


Other non-current assets



4,504




3,109


Total assets


$

321,374



$

334,254











Liabilities and Stockholders' Equity:










Current liabilities:









Accounts payable and accrued liabilities


$

3,310



$

3,935


Total current liabilities



5,526




3,944











Contingent consideration payable



-




4,900


Unsecured senior notes, net



31,078




30,781


Revolving credit facility



-




12,350


Other non-current liabilities



1,566




1,964


Total liabilities



38,170




53,939











Commitments and contingencies (Note 6)


















Stockholders' equity:









Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding



-




-


Common stock, $0.001 par value; 250,000,000 shares authorized; 12,447,195 and 12,497,770 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively



12




12


Additional paid-in capital



4,423,472




4,425,104


Accumulated deficit



(4,140,280

)



(4,144,801

)

Total stockholders' equity



283,204




280,315


Total liabilities and stockholders' equity


$

321,374



$

334,254


SWK HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)



Three Months Ended
June 30,



Six Months Ended
June 30,




2024



2023



2024



2023


Revenues:













Finance receivable interest income, including fees


$

10,680



$

9,278



$

21,399



$

18,538


Pharmaceutical development



804




183




1,083




301


Other



57




36




103




69


Total revenues



11,541




9,497




22,585




18,908


Costs and expenses:

















Provision (benefit) for credit losses



4,074




(682

)



9,397




(682

)

Loss on impairment of intangibles assets



5,771




-




5,771




-


Interest expense



1,119




363




2,375




545


Pharmaceutical manufacturing, research and development expense



520




1,509




1,050




2,228


Change in fair value of acquisition-related contingent consideration



(4,900

)



-




(4,900

)



-


Depreciation and amortization expense



421




637




935




1,285


General and administrative expense



2,923




2,997




5,607




5,537


Income from operations



1,613




4,673




2,350




9,995


Other income (expense), net

















Unrealized net gain (loss) on warrants



226




399




131




(583

)

Net realized gain on sale of marketable investments



656




-




513




-


Realized gain (loss) on sale of assets



3




-




(228

)



-


Gain on revaluation of finance receivable



2,495




-




2,495




-


Realized and unrealized foreign currency transaction gains



437




316




524




502


Income before income tax expense



5,430




5,388




5,785




9,914


Income tax expense



1,035




1,454




1,264




1,345


Net income


$

4,395



$

3,934



$

4,521



$

8,569



















Net income per share

















Basic


$

0.35



$

0.31



$

0.36



$

0.67


Diluted


$

0.35



$

0.31



$

0.36



$

0.67


Weighted average shares outstanding

















Basic



12,457




12,741




12,466




12,787


Diluted



12,528




12,785




12,534




12,830


SWK HOLDINGS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



Six Months Ended
June 30,




2024



2023


Cash flows from operating activities:







Net income


$

4,521



$

8,569


Adjustments to reconcile net income to net cash provided by operating activities:









Provision (benefit) for credit losses



9,397




(682

)

Loss on impairment of intangible assets



5,771




-


Right-of-use amortization and cease use costs



261




156


Amortization of debt issuance costs



491




168


Deferred income taxes, net



1,239




1,316


Net change in fair value of warrant assets



(131

)



583


Net realized gain on exercise of warrants



(513

)



-


Realized loss from sale of assets



228




-


Change in fair value of acquisition-related contingent consideration



(4,900

)



-


Gain on revaluation of finance receivable



(2,495

)



-


Foreign currency transaction gain



(327

)



(516

)

Loan discount amortization and fee accretion



(2,592

)



(2,297

)

Interest paid-in-kind



(904

)



(957

)

Stock-based compensation



360




199


Depreciation and amortization expense



935




1,285


Changes in operating assets and liabilities:









Interest, accounts receivable and other receivables



(2,655

)



(1,287

)

Other assets



(150

)



(792

)

Accounts payable, accrued expenses, and other non-current liabilities



(900

)



(354

)

Deferred income



2,207




(3

)

Net cash provided by operating activities



9,843




5,388











Cash flows from investing activities:









Sale of finance receivables



-




13,942


Sale of marketable investments



574






Investment in finance receivables



(7,446

)



(13,101

)

Repayment of finance receivables



11,693




3,041


Corporate debt securities principal payments



13




17


Purchases of property and equipment



(21

)



(191

)

Net cash provided by investing activities



4,813




3,708











Cash flows from financing activities:









Net settlement for employee taxes on stock options



(43

)



-


Net payments on credit facility



(12,350

)



(2,445

)

Payments for financing costs



-




(872

)

Repurchases of common stock, including fees and expenses



(1,950

)



(5,130

)

Net cash used in financing activities



(14,343

)



(8,447

)

Net increase in cash, cash equivalents, and restricted cash



313




649


Cash, cash equivalents, and restricted cash at beginning of period



5,236




6,156


Cash, cash equivalents, and restricted cash at end of period


$

5,549



$

6,805











Supplemental non-cash activity:









Derecognition of ROU assets to operating lease liabilities upon termination of lease


$

82



$

-


SOURCE: SWK Holdings Corp.

Topic:
Earnings
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