SWK Holdings Corporation

All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Susan Zhu, Investor Relations. You may begin.

Thank you. Good morning, everyone, and thank you for joining SWK Holdings' fourth quarter 2024 financial and corporate results call. Yesterday, SWK Holdings issued a press release detailing its financial results for the three months ended December 31st, 2024. The press release can be found in the investor relations section of swkhold.com under news releases. Before beginning today's call, I would like to make the following statement regarding forward-looking statements. Today, we will make certain forward-looking statements about future expectations, plans, events, and circumstances. including statements about our strategy, future operations, and our expectations regarding our capital allocation and cash resources. These statements are based on our current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those details in the risk and uncertainties factors section of SWK Holdings' 10-K filed with the SEC, and other filings we make with the SEC from time to time. SWK Holdings disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me from SWK Holdings on today's call is Jody Staggs, President and CEO, and Adam Rice, CFO, who will provide an update on SWK's fourth quarter 2024 corporate and financial results. Jody, go ahead.

Thank you, Susan. And thanks, everyone, for joining our fourth quarter conference call. We are pleased with SWK's fourth quarter performance and the company enters 2025 on solid footing. Our fourth quarter was highlighted by solid financial performance, including $8.2 million of finance segment net income, improvement in the portfolio's credit quality, and $44 million of capital deployed into yielding financial receivables to life science companies. Our non-GAAP tangible financing book value per share increased 8% year-over-year to $21.15. And with share trading at a discount to book and given our excess capital, we have been active purchasers of our shares, having repurchased approximately 100,000 shares for $1.6 million since September 30, 2024. During the fourth quarter, we closed an up to $8 million senior secured term loan to Triple Ring Technologies, upsized the loan to $30 million, and advanced a cumulative $10.6 million to four performing borrowers. In January, we closed an up to $15 million term loan with ApetaMed with $10 million advanced at close. These are all core SWK financings to commercial stage life science companies. Each is either public and has demonstrated the ability to raise capital or private with a supportive sponsor. Since we last spoke, three SWK financial receivables were repaid at premiums to the GAAP carrying value. In December, VERU made a $4.2 million payment to fully satisfy the FC2 royalty. The FC2 royalty generated a 45% IRR and a 2.7x MOIC. In December, Moleculite made a final payment totaling $12.2 million to repay its term loan to SWK. The Moleculite term loan generated a 20% IRR and a 1.6 MOIC. SWK continues to hold equity in Moleculite, which is carried at zero on our books. In March, ANI-FORMA made a $17.25 million payment to exercise an option to buy out the Alluvian Royalty. The Alluvian Royalty generated a 20% IRR and a 1.8x MOIC. At December 31, 2024, we had $13.8 million of gross finance receivables on non-accrual. The non-accrual receivables have a 15% CISA reserve, thus our net non-accrual totaled $11.7 million. This morning we announced the signing of a transaction to sell our remaining performing royalty portfolio for $34 million. The deal is expected to close in approximately two weeks. In combination with the alluvium buyout, the $51.3 million of proceeds from the two monetization transactions is approximately $1 million more than the carrying value. at December 31, 2024. Upon closing of the transaction, we also expect to close out a Japanese yen hedge, which will free up an additional $4.5 million of cash. Proforma for these changes, as well as a $3 million principal repayment from 4Web in the first quarter of 2025, and using the 12-31-2024 balances, our go-forward gross portfolio consists of approximately $218 million of performing loans $14 million of non-accruals, and approximately $5 million of equities and warrants. Our fourth quarter 2024 portfolio effective yield was 15.5%. The effective yield is the yield assuming all financial receivables pay as modeled. This figure is not adjusted for the post-quarter changes, but should be in the neighborhood of the go-forward portfolio yield, even considering the royalty sale. Finally, as of yesterday, our cash totaled over $30 million, and we have no borrowings under our revolver. Assuming closing of the final royalty transaction and release of the FX hedge, our gross cash will total nearly $70 million. We anticipate the board will declare a dividend on the closing of the final royalty transaction. Turning to our Interest CDMO division, which has been rebranded as Mod3 Forma to signify its transformation into a pure place CDMO business. We are pleased with Mod 3's 2024 results as segment division revenue totaled $3.6 million, tripling from $1.2 million in 2023. We expect continued growth in 2025, and the team is focused on positioning the business for unsubsidized profitability by year end. We are in regular contact with our strategic partner and believe they are pleased with Mod 3's performance. With that, I will turn the call to our CFO, Adam Rice, to review the quarter's financial results.

Thank you, Jody, and good morning, everyone. Yesterday, we reported earnings for the fourth quarter of 2024. We reported GAAP pre-tax net income of $8.6 million, or $0.70 per diluted share. A reported fourth quarter of 2024 net income of $5.9 million after income tax expense of $2.7 million included a $1.1 million increase in finance receivable segment revenue and a $1.3 million increase in pharmaceutical development. segment revenue. The $1.1 million increase in revenue or in year-over-year finance receivable segment revenue was primarily due to a $2.3 million increase in interest and fees earned on newly funded loans and royalties. The accelerated fees on early payoffs and accelerated fees on early payoffs. The increase in finance receivable segment revenue was partially offset by $900,000 in as a result of two investments entering non-recrual status this year. As of December 31st, 2024, our GAAP book value per share was $23.45, a 5% increase compared to $22.33 as of December 31st, 2023. Additionally, non-GAAP tangible finance book value per share totaled $21.15 as of December 31st, 2024. and 8.3% increase compared to $19.53 as of December 31st, 2023. Overall operating expenses, which overall operating expenses, which include interest expense, pharmaceutical manufacturing, research and development expense, general and administrative expense and provision for credit losses were 6.6 million during fourth quarter 2024 compared to 6.8 million in fourth quarter 2023. Mod 3 operating expenses were $1.6 million in fourth quarter 2024 compared to $1.8 million in fourth quarter 2023. And finance receivable segment operating expenses were $5.3 million in fourth quarter 2024 compared to $5.6 million in fourth quarter 2023. The finance receivable operating segment expenses further break down for fourth quarter 2024 to general and administrative expenses of 2.1 million, provision for credit losses of 2 million, and interest expense of 1.2 million. And for fourth quarter 2023, general and administrative expenses of 2.1 million, provision for credit losses of 2.4 million, and interest expense of 1.1 million. The decrease in finance receivable segment operating expenses was mainly due to a $400,000 decrease in provision for credit losses. The decrease in provision for credit losses is most notably attributed to the strategic exit of three non-accrual investments during the quarter. Turning to our share repurchase program, we bought back roughly 50,000 shares at a total cost of $800,000 during the quarter. Since quarter closed, we have repurchased an additional 47,000 shares for a total cost of $800,000. Lastly, for financial reporting purposes, we have transitioned the Mod3 segment to held for sale as of December 31st, 2024. The transition to held for sale status was based on criteria set forth in GAAP accounting guidance and is related to the option purchase agreement entered into between Mod3 and a strategic partner effective January 1st, 2024. With that, I'll turn it back over to Jody.

Thank you, Adam. We enter 2025 with a healthy loan portfolio yielding in the mid-teens, as well as $30 million of gross cash. The sale of our remaining performing royalty portfolio and closeout of the FX hedge will add an additional $39 million of cash to our balance sheet, and we anticipate declaring a dividend on the closing of the final royalty transaction. Our Mod 3 CDMO division is self-sufficient and working with our strategic partner to address the sizable need for phase one and phase two nasal CDMO services. With that, let's open the call to questions.

Absolutely. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star one if you have a question or a comment. The first question comes from Scott Jensen, private investor. Please proceed.

Good morning, Jody and team. Congratulations on so much progress since we last spoke. I guess I got a couple of questions for you. When you're thinking about a dividend, since it's such a large pile of cash, are you thinking about an ongoing dividend or a special dividend returning some of that cash, that cash pile to shareholders?

Yeah, Scott, thanks. So the board is still considering our options. I would anticipate initially a one-time special dividend. That doesn't mean that there might not be additional special dividends in the future, but at this time I don't anticipate a recurring dividend.

Love it. That's what I would hope for as well. Second, as far as the buyback, Where are you on the current buyback? And then again, is that going to be something the board is going to consider about renewing or increasing the buyback?

Yeah, and Adam, if you have the email pulled up from Courtney, I might have you look and check how much room we have. But we do have enough room on our buyback. It's been interesting trying to navigate this with our blackout period. So once we go into the blackout period – the algorithm takes over and we don't really have control over how many shares are repurchased. When we're not in the blackout period, we can direct it and be more aggressive or less aggressive. So I would say we're still active repurchasers of our shares. We think, particularly with the news we announced today, if shares are trading at a 20% discount, that's an attractive use of capital. We'll continue to do that. We should be out of the blackout period when we report first quarter roughly May 15th in that ballpark. And the program will expire. I think it expires roughly that date. I don't, you know, we have not discussed it, but I think the board views the buyback as an attractive use of capital. And I would expect, assuming, you know, Everything else is equal that that the board would would strongly consider reauthorizing the program for another year. Excellent. Thank you.

And I just also want to say congratulations on all those workouts violence, etc. Those were excellent and cleaning it up. I will get out of queue and see if somebody else, but keep up the good work and thank you again and love reading the progress.

Thank you. Appreciate the support.

If there are any remaining questions, please indicate so now by pressing star 1 on your touchtone phone. Once again, please press star 1 if you have a question or a comment.

Okay, we have no further questions in the queue.

I would like to turn the floor back to Jody for any closing remarks.

Thanks, John. Thank you for joining us today and for your continued support of SWK. We hope everyone has a great day. Thanks.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.