SWK Holdings - Earnings Call - Q2 2025

Executive Summary

• SWK delivered non-GAAP adjusted EPS of $0.38, materially above Wall Street’s Primary EPS consensus of $0.18, while GAAP diluted EPS was $0.29; the beat reflected lower provision expense and stable portfolio yields. Management said Q2’s $4.6M adjusted net income is a “reasonable run rate” going forward. (EPS consensus value from S&P Global)*
• Total revenue was $10.052M, down 6.5% year over year and down ~15% sequentially, primarily due to monetizing most of the royalty portfolio; this was partly offset by higher Pharmaceutical Development revenue.
• Strategic actions: sold most royalty assets at approximately book value and, post-quarter, sold most MOD3 assets; returned $49.1M to shareholders via a $4.00 special dividend and bought back ~59K shares in Q2 (198K YTD by Aug 8). These actions simplify the business and refocus on the core finance receivables strategy.
• Portfolio yields edged lower (effective yield 14.1%, realized yield 14.3%), with three nonaccrual receivables and modest Q2 impairments; management emphasized conservative deployment amid heightened private credit competition.

What Went Well and What Went Wrong

What Went Well

• Non-GAAP finance segment earnings strength: Finance Receivables segment adjusted non-GAAP net income rose to $4.6M from $2.6M in Q2 2024, evidencing improved core profitability.
• Strategic simplification and capital return: “During the second quarter, we sold the majority of our royalty portfolio for approximately book value and paid a $4.00 per share dividend…After the quarter closed, we sold the majority of the assets at our MOD3 subsidiary…These actions have simplified the business and allow the team to focus on our core life science loan strategy.” — CEO Jody Staggs.
• Lower credit costs: Finance receivables operating expenses fell YoY, driven by a ~$3.3M decrease in provision for credit losses; CFO noted impairments were $0.5M in Q2 2025 vs $4.3M in Q2 2024.

What Went Wrong

• Revenue decline: Q2 revenue fell 6.5% YoY to $10.052M and ~15% sequentially, mainly due to the royalty portfolio sale reducing Finance Receivables revenue.
• Yield compression: Portfolio effective yield declined 50 bps YoY to 14.1% and realized yield fell 110 bps YoY to 14.3%, reflecting asset mix shifts and lower fee realization.
• Credit watch items: Three receivables in nonaccrual (Flowonix $7.1M; Best $2.3M; Ideal $2.8M) and Q2 impairments totaling $0.5M; later $0.5M received from Flowonix estate post-quarter.

Transcript

Operator (participant)

Greetings. Welcome to the SWK Holdings Second Quarter twenty twenty five Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

I will now turn the conference over to your host, Susan Xu, Investor Relations. You may begin.

Susan Xu (Director - Investor Relations)

Good morning, everyone, and thank you for joining SWK Holdings' Second Quarter twenty twenty five Financial and Corporate Results Call. Yesterday, SWK Holdings issued a press release detailing its financial results for the three months ended 06/30/2025. The press release can be found in the Investor Relations section of swkhold.com under News Releases. Today, we will be making 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 detailed in the Risk Factors section of SWK Holdings 10 ks 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 Reitz, CFO, who will provide an update on SWK's second quarter twenty twenty five corporate and financial results. Over to you, Jody.

Jody Staggs (CEO & President)

Thank you, Susan, and thank you everyone for joining our second quarter conference call. Since we last spoke, SWK has worked to reconcile the gap between how the market prices our assets in our view of the underlying value. During the second quarter, we completed a sale of the majority of our royalty assets and after quarter close, we completed the sale of the majority of the assets at our Mod three subsidiary. The sale of these assets was completed for approximately book value, a premium to where STBK has historically traded. During the quarter, STBK returned $49,000,000 of these proceeds of these sales to shareholders through a $4 per share dividend.

Additionally, year to date, STBK has returned an additional $3,000,000 of capital to shareholders through the repurchase of approximately 200,000 shares of our common stock. We believe these steps demonstrate the organization's focus on realizing the underlying value of our assets and ensuring that shareholders benefit from these realizations. These actions have simplified our business and SWK's remaining financial assets are cash, $234,000,000 of gross performing first lien term loans with an effective yield of 14.1%, 12,000,000 of gross non performing real royalties, dollars 5,000,000 of public equities warrants and approximately 11 private warrants and earn outs which are carried at $0 for GAAP purposes. Against these assets, carry an $8,800,000 general loan loss reserve. For the second quarter, both our non GAAP adjusted net income and finance segment adjusted non GAAP net income totaled $4,600,000 We believe this level is a reasonable run rate for the business going forward.

Our non GAAP tangible financing book value per share totaled $18.47 a year over year increase of 11.7% after considering the $4 per share special dividend and achieving our stated goal of 10% plus book value per share growth. On July 15, the Avtar Group exercised its option to acquire the majority of the Mod three assets for a predetermined purchase price totaling $6,900,000 which includes the $3,300,000 of payments SWK had already received. We view this as a successful outcome and in the best interest of SWK shareholders, our former Mod three colleagues and Aptar. We wish Paul and the team the best and look forward to following their success under the Aptar banner. With that, I will turn the call to our CFO, Adam Meiss, to review the quarter's financial results.

Adam Rice (CFO)

Thank you, Jody, and good morning, everyone. Yesterday, we reported earnings for the 2025. We reported GAAP pretax net income of $4,600,000 or $0.37 per diluted share. Our reported second quarter twenty twenty five net income is $3,500,000 after income tax expense of just over $1,000,000 This includes a $1,200,000 decrease in year over year finance receivables segment revenue and $500,000 increase in year over year pharmaceutical development segment revenue. The $1,200,000 decrease in year over year Finance Receivable segment revenue was primarily due to $3,400,000 decrease in interest and fees due to pay downs, payoffs, and the sale of the majority of our royalty portfolio.

The decrease was partially offset by a $2,200,000 increase in interest and fees earned due to add on fundings and newly funded finance receivables. The previously mentioned paydown of funding activity is typical as SWK continually manages return of capital as well as capital deployment. As of 06/30/2025, our GAAP book value per share was $20.23 an 11% decrease compared to $22.72 as of 06/30/2024. When adjusting for the $4 per share dividend paid during the quarter, the GAAP book value per share was $24.46 a 6.8% increase year over year. Overall operating expenses, which include interest, pharmaceutical manufacturing, research and development expense, general and administrative expense, and provision for credit losses were $5,400,000 during the 2025 compared to 9,900,000.0 in the 2024.

Mod three operating expenses were $1,200,000 in the 2025 compared to $2,500,000 in the 2024. The finance receivables segment operating expenses were $4,200,000 in the 2025 compared to $7,400,000 in the 2024. The finance receivables operating expenses further break down the 2025 to general and administrative expense of $2,200,000 provision for credit losses of $800,000 and interest expense of 1,200,000.0 And for 2024, general and administrative expenses of $2,200,000 provision for credit losses of $4,100,000 and interest expense of $1,100,000 The decrease in finance receivables segment operating expenses was mainly due to a $3,300,000 decrease in provision for credit losses. The decrease in provision for credit losses is most notably attributable to $500,000 of asset impairments in the 2025 versus $4,300,000 of asset impairments in the 2024. Turning to our share repurchase program.

We bought back just under 60,000 shares for a total of $900,000 during the quarter. Since quarter close, we have repurchased an additional 88,000 shares for a total cost of $1,300,000 With that, I'll turn it back over to Jody.

Jody Staggs (CEO & President)

Thank you, Adam. The management team and Board are focused on achieving value for our shareholders as demonstrated by our actions year to date. Our remaining loan book is healthy and we believe the second quarter's results are a reasonable proxy for the earnings power of the business going forward. With that, let's open the line to questions.

Operator (participant)

Certainly. At this time, we will be conducting question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would 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. Your first question for today is from Scott Jensen, a Private Investor.

Speaker 4

Hey, good morning, Jody and Abt. Congratulations on a nice quarter. With the Mod three sale, obviously, we'll see a bump in revenue in the third quarter. But what about the costs associated with that business going on to Aptar? Do you have any recurring costs that remain on your side of the ledger?

And then kind of what would that maybe SG and A impact be now that Aptar owns it?

Jody Staggs (CEO & President)

Yes. Let me take the first stab at that and then I wanted to add maybe to speak a little bit to this as well and some of the accounting around it. But third quarter will be a little bit messy because we did agree to a transition services agreement, which runs through mid September. Now we are getting those costs reimbursed. So all the cost of the business went to Aptar on the close.

There's no ongoing cost at Mod three. So we it was an asset sale. We still own the Mod three shell. There is some IP in there that we'll try to monetize, but all the costs have gone. Again, there may be a little bit of challenges or sort of some lingering costs in the third quarter.

In terms of the cost going forward, if I just look at our finance segment financials, which is everything but Mod three, so that includes all the corporate costs. We had $2,300,000 of G and A in the quarter. Now, I think when we look through that, there was a few transactions going on in the quarter. Of course, we had legal spend. So sort of normalized SG and A was in the ballpark of $2,000,000 which is our goal, is to be at that level.

So I think that's a reasonable level, obviously assuming no sort of one off legal spend.

Speaker 4

Okay. Thank you.

Adam Rice (CFO)

Yeah. And I would just add to that. Jody really nailed it. There will be some third quarter noise related to ins and outs as we sort of see Mod three out of our ecosystem. And then the ongoing cost, pretty minimal, especially when you consider if you look at our the guaranteed revenue agreement we had in place and how Mod three was carried over the last several quarters.

It was relatively neutral on a net basis. So I that's really what you'll see. I don't think you should see any big surprises one way or another.

Speaker 4

Okay, great. And then I've got some kind of higher level questions, and that is, the first is, do you see or kind of what's your read on changes at the FDA affecting underlying portfolio companies and some of the companies that you invest in? Do you see any impact, risk, things like that due to some of the changes that seem to be going on?

Jody Staggs (CEO & President)

Yeah. You know, we we've spent a fair amount of time talking about regulatory changes and and risks in the portfolio. You know, initially, was tariffs. We we reviewed all of our companies and had them do an analysis and felt that we had sort of minimal exposure there. I think there's maybe like three or four different regulatory things going on.

One is sort of FDA. I mean, it's a little hard to sort of hypothesize on where this leads out. But near term, I guess the current thought is that there could be fewer drugs approved. That doesn't really impact our portfolio. We don't have any drug companies or device companies that are pending some type of approved products.

So, not a big concern there. The second broadly speaking, I'll call is like pricing risk, form of pricing risk and this takes all kinds of different forms. We don't think anything we have is is any of our borrowers are are too at risk. Know, you if you look at the specialty pharma companies we have, Itaan is a rare disease situation and that's kind of a whole unique pricing structure, but nothing we've seen thus far really scares us there. A couple of our companies are not that, but are fairly low priced.

And if you look at Ocufur, the Shield product, it's a low priced product. I don't worry too much about rebates or sort of negotiations there. So, and then journey is dermatology and a lot of that's cash pay. So, I'm not too worried about that. The area that probably we've had a little more concern about has been NIH sort of scientific funding cuts.

We've got a couple of companies that are vendors into the sort of that channel. We've got one CDMO and then there's a company we have that sells life science tools. And they definitely have seen some impact from these cuts. I don't think it's drastic or material to the ongoing business particularly as a lender. But I know they've lost some orders along the way and it's probably worth saying that that whole space has really had a tough go the last couple of years.

If you look at the biotech, their customer base went through kind of a classic boom bust cycle and we're potentially kind of in the bottom of that bust cycle. So it's been a tough go for all those folks for really a couple of years.

Speaker 4

Understandable. And then I my other kinda global question is we we've just seen so many and it's the talk of the town, private credit, and everybody coming in and raising funds and people who probably have no business coming into the space, but that doesn't prevent them if they've got access to capital. How do you see that affecting, you know, deal flow, people willing to, take more risks than you'd be willing to? Are you comfortable just sitting back, buying back stock, waiting for a better pitch? Kind of how do you see that development in the marketplace?

Jody Staggs (CEO & President)

Yeah. You know, and thanks. You sent me a bunch of articles. I know we've traded notes on that. There are definitely there's more capital that's coming over the last couple of years.

And, you know, I know we've talked a bit about some of these retail products, interval funds and private BDCs and the need to deploy capital. So we are aware of that. And I think if you look year to date, we've been fairly tempered on the deployment side. We've been able to add some on to existing performing bars, which is always great. I think we've made one new loan to Australian company that was a little bit off the run and we felt good and fine about that one kind of a core deal for us.

So we've been pretty disciplined. Think there's still, you know, the ability to put money to work in small fund setting like SWK. But, I mean, fact of the matter is it's capitalism. Know, money comes in, returns come down. So we've got to just be a bit more careful and given our cost of capital in particular.

That probably explains some of the, I think, measure pace we've had on deployments this year.

Speaker 4

So thank you. I'll get online and see if anybody else has questions. Congratulations. Thank you.

Operator (participant)

We have reached the end of the question and answer session. And I will now turn the call over to Jody for closing remarks.

Jody Staggs (CEO & President)

Great. Well, thanks everyone for joining the call. Thanks for continued support of SCBK. Hope everyone has a wonderful day and a fantastic weekend. Bye bye.

Operator (participant)

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