• Total revenues of approximately $6.8 million for the second quarter of 2018 compared to $6.1 million for the second quarter of 2017.
  • Net income attributable to SWK Stockholders of $3.7 million, or $0.28 per share, and non-GAAP Adjusted net income of $5.6 million, or $0.43 per share for the second quarter of 2018.

  • Closed one financing during the quarter, deploying $7.6 million with additional $10.0 million deployed through existing portfolio company milestones and add-ons. Closed fourth financing year to date in July, bringing year to date capital deployment to $62.3 million.

  • Raised $20 million revolving credit facility.
  • Book value of $16.49 per share as of June 30, 2018 vs. $15.93 per share as of December 31, 2017.

DALLAS, Aug. 10, 2018 (GLOBE NEWSWIRE) — SWK Holdings Corporation (SWKH.OB) (“SWK” or the “Company”), a life science focused specialty finance company, announced its second quarter 2018 financial results.

Second Quarter 2018 Highlights:

  • Reported total revenues of approximately $6.8 million for the quarter, compared to $6.1 million for the second quarter of 2017.
  • Reported net income of approximately $3.7 million, or $0.28 per diluted share, for the quarter, as compared to $3.4 million, or $0.26 per diluted share, for the second quarter of 2017.
  • Total income producing assets (defined as finance receivables, marketable securities and investment in unconsolidated subsidiaries; less non-controlling interests) were approximately $171.8 million as of June 30, 2018, an 11.6% increase compared to $153.9 million as of December 31, 2017.

“We had a very active first half of 2018, closing four new transactions year to date through July and deploying $46.7 million into new opportunities,” stated Winston Black, Chief Executive Officer of SWK. “We are encouraged by the quality of and activity in our pipeline. We believe we have built a high-quality platform in the life science finance sector, becoming a reliable partner for companies seeking non-dilutive finance alternatives to focus our efforts on executing our long-term strategy. With our new credit facility, we are well positioned to continue growing our finance receivables portfolio.”

Note:

  • All references to growth rate percentages and shares compare the results of the period to those of the prior year comparable period.
  • The Company reports its financial results in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”).  However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance.
  • Non-GAAP Adjusted net income and its components and Non-GAAP Adjusted basic and diluted earnings per share (“EPS”) are not, and should not be viewed as, substitutes for GAAP net income and its components and basic and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are Non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP Adjusted net income and its components (unlike GAAP net income and its components) may not be comparable to the calculation of similar measures of other companies.

Portfolio Overview

As of June 30, 2018, the Company’s total income producing assets were approximately $171.8 million, an 11.6% increase as compared to $153.9 million as of December 31, 2017.

(in thousands)   June 30,   December 31,
    2018   2017
Finance receivables   $ 170,661     $ 151,995  
Marketable investments   1,152     1,856  
Total income producing assets   $ 171,813     $ 153,851  
Warrant Assets   1,349     987  
Total Portfolio Balance   $ 173,162     $ 154,838  
                 

During the quarter, the Company closed a new royalty financing for $7.6 million and realized $9.2 million of proceeds on an exit of a loan position. Subsequent to quarter end, the Company closed a new loan transaction for $12.2 million and received another loan payoff, receiving $16.4 million in proceeds. On a gross basis, the Company has deployed $62.3 million year to date through August 10, 2018.  Net of payoffs, the Company has deployed $36.7 million year to date through August 10, 2018.

As of August 10, 2018, the Company and its partners have executed transactions with 30 different parties under its specialty finance strategy, funding an aggregate $445 million since 2012 in various financial products across the life science sector.  At the end of the second quarter, the weighted average projected effective yield of the finance receivables portfolio was 13.1%.  The projected effective yield is the rate at which income is expected to be recognized pursuant to the Company’s revenue recognition policies, if all payments are received pursuant to the terms of the finance receivables. The decrease in the effective yield from the first quarter of 2018 is primarily due to the payoff of a loan position and another loan position becoming non-accrual during the quarter.

Total portfolio investment activity as of and for the three and six months ended June 30, 2018 and June 30, 2017 was as follows (in thousands):

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017   2018   2017
Beginning portfolio $ 169,075       $ 135,678       $ 154,838       $ 136,985    
Early pay-offs (8,500 )           (8,500 )        
Impairment expense and provision for loan credit losses             (1,179 )        
Interest paid-in-kind 48       424       96       807    
Investment in finance receivables 17,460       7,374       46,710       11,012    
Loan discount amortization and fee accretion 850       550       1,497       1,378    
Changes in unconsolidated entity investment, net of noncontrolling interest                   (6,985 )  
Net unrealized gain (loss) on marketable investments and derivatives (808 )     (238 )     (658 )     1,110    
Principal payments received on investments (5,027 )     (35 )     (5,742 )     (60 )  
Proceeds/realized gains from sale of investments                   (101 )  
Royalty (paydowns ) accretion (33 )     44       (14,255 )     (349 )  
Warrant investments, net of cancellations 97       431       355       431    
Ending portfolio $ 173,162       $ 144,228       $ 173,162       $ 144,228    
                                       

Results of Operations

Revenues

We generated revenues of $6.8 million for the three months ended June 30, 2018, which consisted primarily of interest and fees earned on our finance receivables. We generated revenues of $6.1 million for the three months ended June 30, 2017, driven primarily by $5.7 million in interest and fees earned on our finance receivables. The increase in revenue is primarily due to a $1.0 million increase in interest and fees earned on new and existing finance receivables and a larger portfolio. Revenue also reflects a $0.6 million decrease in royalty revenue on our Narcan® investment. Royalty revenue from our Narcan® investment will be substantially less going forward, as we reached the 1.5x cash on cash royalty cap during the three months ended March 31, 2018. The increase is partially offset by a $0.3 million decrease in income from our investment in an unconsolidated entity, which sold its US marketing rights to its underlying intellectual property.

Provision for Credit Losses

We did not recognize an allowance for credit losses during the three months ended June 30, 2018 and 2017.

General and Administrative

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expenses increased to $1.2 million for the three months ended June 30, 2018 from $1.0 million for the three months ended June 30, 2017, which was primarily due to an increase in the performance-based bonus accrual payable to Company management and employees.

Other Income (Expense), Net

Other income (expense), net for the three months ended June 30, 2018 and 2017, respectively, reflected a net fair market value loss of $(0.2) million and $(0.1) million on our warrant derivatives and a net fair market value loss of $(0.5) million and $0 on our equity securities.

Income Tax Provision

We recognized $1.1 million of deferred income tax expense for the three months ended June 30, 2018. We recognized $1.4 million of deferred income tax expense for the three months ended June 30, 2017. The decrease in deferred income tax expense was primarily due to a reduction in the Federal statutory tax rate signed into law on December 22, 2017. The new legislation decreased the U.S. corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018.

Liquidity and Capital Resources

As of June 30, 2018, we had $21.3 million in cash and cash equivalents, compared to $30.6 million in cash and cash equivalents as of December 31, 2017. The primary driver of the net decrease in our cash balance was new and add-on investment funding of $46.7 million, partially offset by interest and fee payments of $28.5 million earned on our finance receivables, including $13.7 million of royalty-related receipts from our Narcan® investment.

As of June 30, 2018, we had $11.9 million of unfunded commitments outstanding.

Adjusted Net Income

Net income in accordance with GAAP for the three-month period ended June 30, 2018, was $3.7 million, or $0.28 per diluted share.  During the same period adjusted net income was $5.6 million, or $0.43 per share.

The table below provides a reconciliation of SWK’s reported (GAAP) consolidated net income to SWK’s adjusted net income attributable to SWK Holdings Corporation Stockholders (Non-GAAP) for the three and six ended June 30, 2018 and June 30, 2017.  The table eliminates provisions for income taxes, non-cash mark-to-market changes on warrant assets and marketable investments and SWK’s warrant liability. 

(in thousands, except per share data)   Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018     2017
Consolidated net income   $ 3,668     $ 3,580     $ 7,312     $ 13,849  
Plus: income tax expense   1,142     1,400     2,095     5,106  
Plus: (gain) loss on fair market value of equity securities   541         664      
Plus: (gain) loss on fair market value of derivatives, net   238     143     (61 )     614  
Subtract: gain on realized value of equity securities               (243 )
Adjusted income before provision for income tax   5,589     5,123     10,010     19,326  
Adjusted provision for income tax                
Non-GAAP consolidated net income   5,589     5,123     10,010     19,326  
Non-GAAP adjusted net income attributable to non-controlling interest       171         5,204  
Non-GAAP adjusted net income attributable to SWK Holdings Corporation Stockholders   $ 5,589     $ 4,952     $ 10,010     $ 14,122  
Non-GAAP adjusted basic income per share   $ 0.43     $ 0.38     $ 0.77     $ 1.08  
Non-GAAP adjusted diluted income per share   $ 0.43     $ 0.38     $ 0.77     $ 1.08  
                               
Weighted average shares – Basic   13,059     13,038     13,056     13,035  
Weighted average shares – Diluted   13,063     13,042     13,060     13,038  
                         

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. 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” 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 or therein, 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.

SWK HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
Derived from unaudited financial statements

  June 30,
 2018
  December 31,
 2017
ASSETS      
Cash and cash equivalents $ 21,281     $ 30,557  
Accounts receivable 1,584     1,637  
Finance receivables, net 170,661     151,995  
Marketable investments 1,152     1,856  
Deferred tax asset 20,630     22,725  
Warrant assets 1,349     987  
Other assets 659     126  
Total assets $ 217,316     $ 209,883  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Accounts payable and accrued liabilities $ 1,506     $ 1,840  
Credit facility revolver   370        
Warrant liability 36     91  
Total liabilities 1,912     1,931  
       
Commitments and contingencies      
       
Stockholders’ equity:      
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
no shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
     
Common stock, $0.001 par value; 250,000,000 shares authorized;
13,063,915 and 13,053,422 shares issued and outstanding at 
June 30, 2018 and December 31, 2017, respectively
13     13  
Additional paid-in-capital 4,433,729     4,433,589  
Accumulated deficit (4,218,338 )   (4,225,863 )
Accumulated other comprehensive income     213  
Total SWK Holdings Corporation stockholders’ equity 215,404     207,952  
Non-controlling interests in consolidated entities      
Total stockholders’ equity 215,404     207,952  
Total liabilities and stockholders’ equity $ 217,316     $ 209,883  
               

SWK HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Derived from unaudited financial statements

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017   2018   2017
Revenues              
Finance receivable interest income, including fees $ 6,764     $ 5,734     $ 13,581     $ 10,390  
Income related to investments in unconsolidated entity     335         10,539  
Other 3     5     7     9  
Total revenues 6,767     6,074     13,588     20,938  
Costs and expenses:              
Provision for loan credit losses         1,179      
General and administrative 1,178     951     2,399     1,612  
Total costs and expenses 1,178     951     3,578     1,612  
Other income (expense), net              
Unrealized net gain (loss) on derivatives (238 )   (143 )   61     (614 )
Unrealized net loss on equity securities (541 )       (664 )      
Gain on sale of marketable securities             243  
Income before provision for income taxes 4,810     4,980     9,407     18,955  
Provision for income taxes 1,142     1,400     2,095     5,106  
Consolidated net income 3,668     3,580     7,312     13,849  
Net income attributable to non-controlling interests     171         5,204  
Net income attributable to SWK Holdings Corporation stockholders $ 3,668     $ 3,409     $ 7,312     $ 8,645  
Net income per share attributable to SWK Holdings Corporation stockholders:              
Basic $ 0.28     $ 0.26     $ 0.56     $ 0.66  
Diluted $ 0.28     $ 0.26     $ 0.56     $ 0.66  
Weighted Average Shares:              
Basic $ 13,059     $ 13,038     $ 13,056     $ 13,035  
Diluted $ 13,063     $ 13,042     $ 13,060     $ 13,038  
                               

SWK HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Derived from unaudited financial statements

  Six Months Ended
June 30,
  2018   2017
Cash flows from operating activities:      
Consolidated net income $ 7,312     $ 13,849  
Adjustments to reconcile net income to net cash provided by operating activities:      
Income from investment in unconsolidated entity     (10,539 )
Provision for loan credit losses 1,179      
Deferred income taxes 2,095     5,106  
Change in fair value of warrants (61 )   614  
Change in fair value of equity securities 664      
Gain on sale of marketable securities     (243 )
Loan discount amortization and fee accretion (1,727 )   (1,622 )
Interest paid-in-kind (96 )   (807 )
Stock-based compensation 140     157  
Interest income in excess of cash received (125 )    
Other 8     9  
Changes in operating assets and liabilities:      
Accounts receivable 53     (316 )
Other assets (19 )   (65 )
Accounts payable and other liabilities (334 )   (91 )
Net cash provided by operating activities 9,089     6,052  
       
Cash flows from investing activities:      
Cash distributions from investment in unconsolidated entity     17,524  
Proceeds from sale of available-for-sale marketable securities     345  
Investment in finance receivables (46,710 )   (11,012 )
Repayment of finance receivables 28,458     261  
Marketable investment principal payment 39     54  
Other (4 )   (11 )
Net cash (used in) provided by in investing activities (18,217 )   7,161  
       
Cash flows from financing activities:      
Debt issuance costs (148      
Distribution to non-controlling interests     (8,960 )
Net cash used in financing activities (148 )   (8,960 )
       
Net (decrease) increase in cash and cash equivalents (9,276 )   4,253  
Cash and cash equivalents at beginning of period 30,557     32,182  
Cash and cash equivalents at end of period $ 21,281     $ 36,435  
               

CONTACT: SWK Investor Relations at (972) 687-7250 or [email protected].