SWK Holdings(SWKH) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, along with management's discussion and analysis of financial condition and results of operations Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2025. Key results include a net income of $4.5 million, a significant increase from $0.5 million in the prior-year quarter. Total assets slightly decreased to $331.3 million, while total liabilities decreased to $38.6 million. The company also entered into a definitive agreement to sell the majority of its finance receivables royalty portfolio for approximately $34.0 million, a transaction that closed after the quarter-end Unaudited Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $331.3 million, a slight decrease from $332.2 million at year-end 2024. The change was driven by a decrease in finance receivables to $223.1 million, partially offset by a significant increase in cash and cash equivalents to $29.8 million. Total liabilities decreased to $38.6 million from $43.5 million, primarily due to the full repayment of the revolving credit facility. Stockholders' equity increased to $292.7 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $29,809 | $5,927 | | Finance receivables, net | $223,076 | $277,760 | | Finance receivables held for sale | $33,990 | $— | | Total Assets | $331,264 | $332,235 | | Revolving credit facility | $— | $6,233 | | Total Liabilities | $38,595 | $43,545 | | Total Stockholders' Equity | $292,669 | $288,690 | Unaudited Condensed Consolidated Statements of Income For the first quarter of 2025, the company reported a net income of $4.5 million, or $0.37 per diluted share, a substantial increase from the $0.5 million, or $0.04 per diluted share, in the same period of 2024. The improvement was primarily driven by a $1.5 million benefit for credit losses (compared to a $5.3 million provision in Q1 2024) and a $1.7 million realized gain on early payment of a finance receivable. This was partially offset by a $3.7 million loss on the revaluation of finance receivables held for sale Q1 2025 vs Q1 2024 Income Statement (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenues | $11,832 | $11,360 | | Provision (benefit) for credit losses | $(1,465) | $5,297 | | Income from operations | $8,113 | $1,079 | | Loss on revaluation of finance receivables held for sale | $(3,727) | $— | | Realized gain on early payment of finance receivable | $1,729 | $— | | Net Income | $4,539 | $468 | | Diluted EPS | $0.37 | $0.04 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $288.7 million at the end of 2024 to $292.7 million as of March 31, 2025. The increase was primarily due to the $4.5 million net income for the quarter, partially offset by $0.9 million in common stock repurchases - Key changes in stockholders' equity for Q1 2025 included a $4.5 million increase from net income and a $0.9 million decrease from stock repurchases[14] Unaudited Condensed Consolidated Statements of Cash Flows The company generated $8.3 million in cash from operating activities in Q1 2025, up from $4.4 million in Q1 2024. Investing activities provided $22.7 million, largely from $32.7 million in repayments of finance receivables. Financing activities used $7.1 million, mainly for repaying the credit facility and stock repurchases. Overall, cash and cash equivalents increased by $23.9 million to end the quarter at $29.8 million Q1 2025 vs Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,280 | $4,430 | | Net cash provided by investing activities | $22,702 | $9,181 | | Net cash used in financing activities | $(7,100) | $(13,349) | | Net increase in cash and cash equivalents | $23,882 | $262 | | Cash and cash equivalents at end of period | $29,809 | $5,498 | Notes to the Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial statement line items. Key disclosures include the company's two reportable segments (Finance Receivables and Pharmaceutical Development), the sale of its royalty portfolio for ~$34.0 million which resulted in a $3.7 million loss, and an exclusive option granted to a partner to acquire assets of its MOD3 (Pharmaceutical Development) business. As of March 31, 2025, the company had $7.5 million in unfunded commitments - The company operates two reportable segments: "Finance Receivables" and "Pharmaceutical Development." The Pharmaceutical Development segment, formerly Enteris BioPharma, was renamed MOD3 Pharma on March 13, 2025[19][22] - On March 19, 2025, the company agreed to sell the majority of its finance receivables royalty portfolio for approximately $34.0 million. This resulted in a pre-tax loss of $3.7 million recognized in Q1 2025. The transaction closed on April 10, 2025[60] - A strategic partner holds an exclusive option, exercisable by January 1, 2026, to acquire certain assets of the MOD3 (Pharmaceutical Development) business. These assets, valued at $6.4 million, have been classified as held for sale[62][64][65] - As of March 31, 2025, the company had $7.5 million in unfunded commitments related to its royalty purchase and credit agreements[80] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant increase in Q1 2025 net income to a $6.8 million positive swing in the provision for credit losses and a $1.7 million gain on an early royalty payoff, which more than offset a $3.7 million loss on the revaluation of assets held for sale. The company's liquidity position strengthened considerably, with cash increasing to $29.8 million and the full repayment of its revolving credit facility. The finance receivables portfolio stood at $223.1 million at quarter-end Finance Receivables Portfolio Overview As of March 31, 2025, the company's total finance receivables portfolio, including assets held for sale, marketable investments, and warrant assets, had a GAAP balance of $270.6 million. The portfolio generated $10.7 million in revenue for the quarter. Several royalty assets are now classified as held for sale due to the pending transaction with Soleus Capital Finance Portfolio Summary as of March 31, 2025 (in thousands) | Category | GAAP Balance | YTD Revenue Recognized | | :--- | :--- | :--- | | Total finance receivables, gross | $231,861 | $8,688 | | Total finance receivables held for sale | $33,990 | $2,024 | | Total marketable investments | $455 | $— | | Total fair value of warrant assets | $4,245 | $— | | Total | $270,551 | $10,712 | - Several royalty investments, including those related to Forfivo XL®, Cambia®, and Iluvien®, are included in the finance receivables held for sale as of March 31, 2025[113] Comparison of Results of Operations Comparing Q1 2025 to Q1 2024, net income rose by $4.0 million. This was primarily due to a $6.8 million decrease in the provision for credit losses (from a $5.3M provision to a $1.5M benefit). Total revenues saw a modest increase of $0.4 million. Other expenses increased by $1.9 million, mainly from the loss on revaluation of finance receivables held for sale Comparison of Q1 2025 vs Q1 2024 (in millions) | Item | Q1 2025 | Q1 2024 | Change $ | | :--- | :--- | :--- | :--- | | Revenues | $11.8 | $11.4 | $0.4 | | Provision (benefit) for credit losses | $(1.5) | $5.3 | $(6.8) | | General and administrative expense | $3.3 | $2.7 | $0.6 | | Other income (expense), net | $(2.3) | $(0.4) | $(1.9) | | Net income | $4.5 | $0.5 | $4.0 | - The $0.4 million revenue increase was driven by a $0.7 million increase in Pharmaceutical Development revenue, partially offset by a $0.3 million decrease in Finance Receivables revenue[117] Liquidity and Capital Resources The company's liquidity significantly improved, with cash and cash equivalents increasing by $23.9 million to $29.8 million at quarter-end. The company had no outstanding balance on its $60.0 million revolving credit facility, with $55.0 million available for borrowing after accounting for a liquidity covenant. The primary drivers of cash flow are income from its finance receivables and pharmaceutical development activities - As of March 31, 2025, cash and cash equivalents were $29.8 million, up from $5.9 million at December 31, 2024[125] - The company has a $60.0 million revolving credit facility. As of March 31, 2025, there was no outstanding balance, and $55.0 million was available for borrowing[126] - As of March 31, 2025, the company had $7.5 million in unfunded commitments[131] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk and inflation risk. The majority of its finance receivables portfolio consists of floating-rate instruments, which helps mitigate the impact of rising interest rates. The company does not currently use hedging instruments. Inflation poses a risk to its partner companies' financial health, which could in turn affect their ability to meet debt obligations - The company is subject to interest rate risk, as its income depends on the spread between the rates earned on its assets and the cost of its borrowings. Most of its finance receivables have floating interest rates[135][136] - The company does not currently engage in any interest rate hedging activities[136] - Inflation could adversely affect the operating results of partner companies, potentially impacting their ability to pay interest and principal on loans and reducing the fair value of SWK's investments[138] Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025. There were no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[140] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[141] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and exhibits Legal Proceedings The company reports that it is not currently involved in any legal proceedings that it expects to have a material effect on its business, financial condition, or results of operations - The company is not involved in any arbitration or other legal proceeding that it expects to have a material effect on its business, financial condition, results of operations, and cash flows[143] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[144] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, the company repurchased 52,337 shares of its common stock at an average price of $16.57 per share, for a total cost of approximately $0.9 million. As of March 31, 2025, approximately $4.5 million remained available for repurchase under the current program, which runs until May 16, 2025 Share Repurchases for Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 17,010 | $16.28 | | Feb 2025 | 16,095 | $16.91 | | Mar 2025 | 19,232 | $16.55 | | Total | 52,337 | $16.57 | - As of March 31, 2025, the maximum dollar value of shares that may yet be purchased under the current repurchase program was approximately $4.5 million[147] Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[148] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[149] Other Information On May 12, 2025, the company entered into amended and restated indemnification agreements with its directors and officers, providing them with contractual rights to indemnification and expense advancement - On May 12, 2025, each member of the Board of Directors and each officer entered into amended and restated indemnification agreements with the Company[150] Exhibits This section lists the exhibits filed with the Form 10-Q. Notable new exhibits include the Purchase and Sale Agreement for the royalty portfolio sale, dated March 19, 2025, and new forms of indemnification agreements for directors and executive officers - Key exhibits filed include the Purchase and Sale Agreement with SCOF SPV I, LP, and new forms of indemnification agreements for directors and officers[152]