SWK Holdings Corporation Announces Financial Results for Third Quarter 2021
SWK Holdings Corporation (SWKH) announced its third-quarter 2021 financial results, demonstrating a 12.7% increase in tangible book value per share, now $17.50. The finance receivables segment reported a 17.6% rise in adjusted non-GAAP net income, totaling $7.7 million, while total revenue decreased to $9.6 million from $10.6 million in Q3 2020. The finance portfolio yielded 18.8%, up from 17.4% year-over-year. The company's strategic review concluded, allowing a focus on specialty finance, with plans to increase leverage prudently to capitalize on market opportunities.
- Tangible book value per share increased to $17.50, a 12.7% rise.
- Finance receivables segment adjusted non-GAAP net income rose to $7.7 million, up 17.6% year-over-year.
- Finance portfolio realized yield increased to 18.8% from 17.4% year-over-year.
- Total revenue decreased to $9.6 million from $10.6 million in Q3 2020.
- GAAP net income fell to $2.2 million from $4.3 million in Q3 2020.
- Operating expenses increased due to strategic review costs.
DALLAS, Nov. 12, 2021 /PRNewswire/ --
Corporate Updates
- Conclusion of strategic review process with SWK to focus on specialty finance receivables business
- SWK evaluating ongoing dividend and additional leverage
Third Quarter 2021 Finance Receivables Segment Updates:
- As of September 30, 2021, tangible book value per share was
$17.50 , a12.7% increase from September 30, 2020 - For the third quarter 2021, finance portfolio effective yield was
13.8% , a 40-bps increase compared with13.4% for the third quarter 2020 - For the third quarter 2021, finance portfolio realized yield was
18.8% , compared to17.4% for the third quarter 2020 - Core finance receivables business generated adjusted non-GAAP net income of
$7.7 million for the quarter ended September 30, 2021, a17.6% increase compared to$6.6 million for the quarter ended September 30, 2020 - As of September 30, 2021, total investment assets were
$206.3 million , a10.3% increase from September 30, 2020
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 third quarter ended September 30, 2021.
"I am pleased to report that both segments of our business performed well during the third quarter. The specialty finance portfolio continued its year-to-date strong performance as highlighted by its
"The recent completion of the strategic review process initiated earlier this year provides management the framework to focus efforts on our specialty finance business going forward. We have built a strong reputation with our platform and are encouraged by the Board's determination that growing the specialty finance business is in the best interests of our stockholders. We intend to return new deal originations to historical levels during 2022, although anticipate this may take a few quarters to ramp up as we fully intend to maintain the high integrity of our underwriting standards. Given SWK's strong current liquidity, including a Board commitment to increase leverage prudently as we scale, we foresee multiple opportunities to deploy capital given the need for small and mid-sized life sciences companies to obtain funding to enable innovation to reach the marketplace."
Mr. Black continued, "Value creation continued at Enteris BioPharma, highlighted by six new Peptelligence® feasibility studies signed year-to-date. The increased industry interest in our Peptelligence technology is driven by the business development efforts of Dr. Rajiv Khosla and his team, as well as the technology's role in advancing Cara Therapeutics' Oral KORSUVA™ program. Last month, Enteris also announced successful completion of a Phase 1 clinical trial of optimized Peptelligence Oral Leuprolide, demonstrating delivery of drug levels comparable or greater to subcutaneous or depot injection. Enteris is advancing the program into the next round of clinical development, and we will provide additional details as warranted."
Third Quarter 2021 Financial Results
For the third quarter 2021, SWK reported total revenue of
Income before taxes for the third quarter 2021 totaled
GAAP net income for the quarter ended September 30, 2021, totaled
Income producing assets (defined as finance receivables and corporate debt securities) totaled
Tangible financing book value per share totaled
Tables detailing SWK's financial performance for the third quarter 2021 are below.
Portfolio Status
During the quarter, SWK did not deploy any capital with existing portfolio companies. During the quarter ended September 30, 2021, the Company collected
As of November 8, 2021, SWK had
At the end of the third quarter 2021, the weighted average projected effective yield of the finance receivables portfolio was
For the third quarter 2021, the realized yield of the finance receivables portfolio was
Total portfolio investment activity for the three months ended September 30, 2021, and 2020 was as follows (in thousands):
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Beginning Portfolio | $ | 212,958 | $ | 182,311 | ||||
Interest paid-in-kind | 672 | 623 | ||||||
Investment in finance receivables | — | 6,350 | ||||||
Loan discount and fee accretion | 885 | 555 | ||||||
Net unrealized gain (loss) on marketable investments and warrant assets | 128 | (193) | ||||||
Principal payments received on investments | (7,112) | (1,860) | ||||||
Royalty paydowns | (1,284) | (826) | ||||||
Warrant investments, net of cancellations | — | 79 | ||||||
Ending Portfolio | $ | 206,247 | $ | 187,039 | ||||
Borrower Liquidity Events
During the quarter ended September 30, 2021, no borrowers experienced liquidity events or repaid SWK. However, after quarter close, two borrowers repaid:
- In October 2021, borrower Thermedx repaid the
$0.5 million subordinate note. Thermedx had repaid the majority of its facility in May 2019. - In October 2021, borrower Misonix was acquired by Bioventus for
$518.0 million . Upon closing of the transaction, Misonix made a$31.6 million payment to SWK to pay principal, accrued interest, and exit fees. Gain on the transaction will be recognized in SWK's fourth quarter. In conjunction with the acquisition, SWK tendered its Misonix stock at$28 per share and received$1.9 million of cash and 71,361 shares of Bioventus common stock, which are freely tradeable.
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 period ended September 30, 2021, and September 30, 2020. The table eliminates provisions for income taxes, non-cash mark-to-market changes on warrant assets and equity securities, amortization of Enteris intangible assets and any non-cash impact on the remeasurement of contingent consideration.
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Consolidated net income | $ | 2,243 | $ | 4,342 | ||||
Add (subtract): income tax expense (benefit) | 513 | (451) | ||||||
Add (subtract): (gain) loss on fair market value of equity securities | (342) | 178 | ||||||
Add (subtract): (gain) loss on fair market value of derivatives | 214 | (87) | ||||||
Add (subtract): strategic review legal, consulting and board expenses | 1,004 | 126 | ||||||
Add: Enteris amortization expense | 619 | 2,588 | ||||||
Add (subtract): (gain) loss on remeasurement of contingent consideration | — | 174 | ||||||
Adjusted income before income tax expense (benefit) | 4,251 | 6,870 | ||||||
Adjusted income tax expense (benefit) | — | — | ||||||
Non-GAAP consolidated net income | $ | 4,251 | $ | 6,870 | ||||
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) (gain) loss on remeasurement of contingent consideration. Management has also deducted legal and board expenses associated with the Company's strategic review; management believes these expenses are not reflective of operational execution.
Finance Receivables Adjusted Non-GAAP Net Income
The following table provides a reconciliation of SWK's consolidated adjusted income before provision for income taxes, listed in the table above, to the non-GAAP adjusted net income for the Finance Receivable segment for the three-month period ended September 30, 2021, and September 30, 2020. The table eliminates Enteris operating (income) and loss. The adjusted income before income taxes is derived in the table above and eliminates income tax expense, non-cash mark-to-market changes on warrant assets and equity securities.
Three Months Ended | ||||||||
2021 | 2020 | |||||||
Adjusted income before income tax expense (benefit) | $ | 4,251 | $ | 6,870 | ||||
Add (subtract): Enteris operating (gain) loss, excluding amortization | 3,490 | (288) | ||||||
Adjusted Finance Receivables income before income tax expense (benefit) | 7,741 | 6,582 | ||||||
Adjusted income tax expense (benefit) | — | — | ||||||
Non-GAAP Finance Receivables net income | $ | 7,741 | $ | 6,582 | ||||
Conference Call Information
SWK Holdings will host a conference call and live audio webcast on Monday, November 15, 2021 at 10:00 a.m. ET, to discuss its corporate and financial results for the third quarter 2021. Interested participants and investors may access the conference call by dialing either:
- (844) 378-6488 (U.S.)
- (412) 317-1079 (international)
An audio webcast will be accessible via the Investors Events & Presentations section of the SWK Holdings' website: https://swkhold.investorroom.com/events. An archive of the webcast will remain available for 90 days beginning at approximately 11:30 a.m. ET, on November 15, 2021.
Non-GAAP Financial Measures
This release includes non-GAAP adjusted net income and non-GAAP finance receivable segment net income, 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, and (iv) 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.
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. Adjusted return on tangible financing book value is calculated by dividing finance receivables segment adjusted non-GAAP net income by Tangible financing book value.
These non-GAAP measures may not be directly comparable to similar measures used by other companies in our 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. These metrics should be considered in addition to, and not as a replacement for, the most comparable GAAP measure.
About SWK Holdings Corporation
SWK Holdings Corporation is a specialized finance company with a focus on the global healthcare sector. SWK partners with ethical product marketers and royalty holders to provide flexible financing solutions at an attractive cost of capital to create long-term value for both SWK's business partners and its investors. SWK believes its financing structures achieve an optimal partnership for companies, institutions and inventors seeking capital for expansion or capital and estate planning by allowing its partners to monetize future cash flow with minimal dilution to their equity stakes. SWK also owns Enteris BioPharma, whose Peptelligence® and ProPerma™ drug delivery technologies create oral formulations of peptide-based and BCS class II, III, and IV small molecules. With Enteris, SWK has the opportunity to grow its finance business by actively building a wholly-owned portfolio of milestones and royalties through licensing activities. Additional information on the life science finance market is available on the Company's website at www.swkhold.com.
Safe Harbor Statement
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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share data) | ||||||||
September 30, | December 31, | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 18,639 | $ | 3,008 | ||||
Interest and accounts receivable, net | 2,254 | 1,911 | ||||||
Marketable investments | 2,767 | 1,210 | ||||||
Other current assets | 1,101 | 542 | ||||||
Total current assets | 24,761 | 6,671 | ||||||
Finance receivables, net | 196,141 | 204,491 | ||||||
Marketable investments | 198 | 241 | ||||||
Cost method investment | 3,491 | 3,491 | ||||||
Deferred tax assets, net | 22,649 | 27,491 | ||||||
Warrant assets | 3,650 | 2,972 | ||||||
Intangible assets, net | 10,507 | 13,617 | ||||||
Goodwill | 8,404 | 8,404 | ||||||
Property and equipment, net | 5,791 | 5,211 | ||||||
Other non-current assets | 1,029 | 1,312 | ||||||
Total assets | $ | 276,621 | $ | 273,901 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 4,494 | $ | 3,652 | ||||
Revolving credit facility | 8 | 11,758 | ||||||
Total current liabilities | 4,502 | 15,410 | ||||||
Contingent consideration payable | 10,670 | 16,900 | ||||||
Other non-current liabilities | 779 | 1,079 | ||||||
Total liabilities | 15,951 | 33,389 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, | — | — | ||||||
Common stock, | 13 | 13 | ||||||
Additional paid-in capital | 4,431,480 | 4,430,924 | ||||||
Accumulated deficit | (4,170,823) | (4,190,425) | ||||||
Total stockholders' equity | 260,670 | 240,512 | ||||||
Total liabilities and stockholders' equity | $ | 276,621 | $ | 273,901 | ||||
SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues: | ||||||||||||||||
Finance receivable interest income, including fees | $ | 9,373 | $ | 7,869 | $ | 29,857 | $ | 22,738 | ||||||||
Pharmaceutical development | 187 | 2,778 | 10,846 | 3,076 | ||||||||||||
Other | — | — | 496 | 9 | ||||||||||||
Total revenues | 9,560 | 10,647 | 41,199 | 25,823 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Impairment expense | — | — | — | 163 | ||||||||||||
Interest expense | 53 | 101 | 292 | 365 | ||||||||||||
Pharmaceutical manufacturing, research and development | 2,487 | 1,182 | 5,577 | 3,311 | ||||||||||||
Change in fair value of acquisition-related contingent | — | 174 | (147) | 1,964 | ||||||||||||
Depreciation and amortization expense | 812 | 2,681 | 3,305 | 9,629 | ||||||||||||
General and administrative | 3,580 | 2,527 | 9,825 | 8,215 | ||||||||||||
Total costs and expenses | 6,932 | 6,665 | 18,852 | 23,647 | ||||||||||||
Other income (expense), net | ||||||||||||||||
Unrealized net (loss) gain on warrants | (214) | 87 | 678 | (1,151) | ||||||||||||
Unrealized net gain (loss) on equity securities | 342 | (178) | 1,557 | (666) | ||||||||||||
Income before income tax expense (benefit) | 2,756 | 3,891 | 24,582 | 359 | ||||||||||||
Income tax expense (benefit) | 513 | (451) | 4,980 | (199) | ||||||||||||
Consolidated net income | $ | 2,243 | $ | 4,342 | $ | 19,602 | $ | 558 | ||||||||
Net income per share | ||||||||||||||||
Basic | $ | 0.18 | $ | 0.34 | $ | 1.53 | $ | 0.04 | ||||||||
Diluted | $ | 0.17 | $ | 0.34 | $ | 1.53 | $ | 0.04 | ||||||||
Weighted Average Shares | ||||||||||||||||
Basic | 12,798 | 12,905 | 12,796 | 12,891 | ||||||||||||
Diluted | 12,859 | 12,916 | 12,834 | 12,898 | ||||||||||||
SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | ||||||||
Nine Months Ended | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net income | $ | 19,602 | $ | 558 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Impairment expense | — | 163 | ||||||
Amortization of debt issuance costs | 35 | 141 | ||||||
Deferred income taxes | 4,842 | (206) | ||||||
Change in fair value of warrants | (678) | 1,151 | ||||||
Change in fair value of equity securities | (1,557) | 666 | ||||||
Change in fair value of acquisition-related contingent consideration | (147) | 1,964 | ||||||
Loan discount amortization and fee accretion | (2,016) | (1,598) | ||||||
Interest paid-in-kind | (698) | (2,369) | ||||||
Stock-based compensation | 556 | 549 | ||||||
Depreciation and amortization expense | 3,305 | 9,629 | ||||||
Changes in operating assets and liabilities: | ||||||||
Interest and accounts receivable | (343) | (2,054) | ||||||
Other assets | (371) | (819) | ||||||
Accounts payable and other liabilities | 542 | 1,434 | ||||||
Net cash provided by operating activities | 23,072 | 9,209 | ||||||
Cash flows from investing activities: | ||||||||
Investment in finance receivables | (20,100) | (12,458) | ||||||
Repayment of finance receivables | 31,162 | 5,928 | ||||||
Corporate debt securities principal payment | 43 | 49 | ||||||
Purchases of property and equipment | (877) | (2,354) | ||||||
Other | 164 | (220) | ||||||
Net cash provided by (used in) investing activities | 10,392 | (9,055) | ||||||
Cash flows from financing activities: | ||||||||
Net (payments on) proceeds from credit facility | (11,750) | — | ||||||
Payment of acquisition-related contingent consideration | (6,083) | — | ||||||
Repurchases of common stock, including fees and expenses | — | (1,998) | ||||||
Net cash used in financing activities | (17,833) | (1,998) | ||||||
Net increase in cash and cash equivalents | 15,631 | (1,844) | ||||||
Cash and cash equivalents at beginning of period | 3,008 | 11,158 | ||||||
Cash and cash equivalents at end of period | $ | 18,639 | $ | 9,314 | ||||
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SOURCE SWK Holdings Corporation
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