News Releases

SWK Holdings Corporation Announces 2015 Third Quarter Financial Results and Appointment of New CEO
Total revenues increased by 53% to approximately $5.7 million for the third quarter of 2015, compared to $3.7 million for the third quarter of 2014
Recorded a net loss attributable to SWK stockholders of $5.8 million, or ($0.44) per share for the third quarter of 2015, compared to net income attributable to SWK stockholders of $0.4 million, or $0.06 per share for the third quarter of 2014
Recorded $8.1 million provision for credit losses related to Response Genetics and SynCardia Systems term loans
Non-GAAP Adjusted net loss of $6.9 million, or ($0.53) per share, for the third quarter of 2015, compared Non-GAAP Adjusted net income of $1.5 million, or $0.22 per share, for the third quarter of 2014
Executed a 1-for-100 reverse stock split of the common stock, followed by a 10-for-1 forward stock split of the common stock
Book value of $1.60 per share
Brett Pope, Chief Executive Officer, will resign effective January 12, 2016, to pursue other interests. Winston Black, currently Managing Director of SWK, will succeed Mr. Pope as Chief Executive Officer.

Dallas, TX, November 16, 2015 – SWK Holdings Corporation (SWKH.OB) (“SWK” or the “Company”), a life science focused specialty finance company, announced today its third quarter 2015 financial results.

Portfolio Overview

As of September 30, 2015, the Company’s total income producing assets were approximately $129.6 million as compared to $102.4 million as of December 31, 2014.

(in thousands, except per share data)

September 30,

 

December 31,

 

2015

 

2014

 

 

 

 

 

 

Finance receivables

$

122,915

 

$

93,347

Marketable investments

 

2,915

 

 

4,849

Investment in unconsolidated subsidiary

 

8,239

 

 

9,044

Less non-controlling interest

(4,434)

 

(4,867)

Total income producing assets

$

129,635

 

$

102,373

SWK has now executed eighteen transactions under its new strategy, deploying approximately $168 million across a variety of opportunities:

  • $16.3 million in four transactions where SWK purchased or financed royalties generated by the sales of life science products and related intellectual property;

  • $144.1 million in thirteen transactions where SWK receives interest and other income by advancing capital in the form of secured debt backed by royalties paid by companies in the life science sector;

  • $6 million in one transaction where SWK acquired an indirect interest in the U.S. marketing authorization rights to a pharmaceutical product where SWK ultimately receives cash flow distributions from the product; and

  • $1.7 million in one transaction through which SWK purchased shares of preferred stock, which includes $0.2 million in lieu of cash payment.

Revenues

SWK generated revenue of $5.7 million for the three months ended September 30, 2015, driven primarily by $4.1 million in interest and fees earned on our finance receivables and marketable securities, and $1.6 million in income related to our investment in an unconsolidated partnership. For the nine months ended September 30, 2015, revenue totaled $16.9 million and included $12.4 million in interest and fees earned on our finance receivables and marketable securities, and $4.5 million in income related to our investment in an unconsolidated partnership. SWK generated revenues of $3.7 million for the three months ended September 30, 2014, driven primarily by $1.9 million in interest and fees earned on our finance receivables and $1.8 million in income related to our investment in an unconsolidated partnership. SWK generated revenues of $10.7 million for the nine months ended September 30, 2014, driven primarily by $5.9 million in interest and fees earned on our finance receivables and $4.5 million in income related to our investment in an unconsolidated partnership. The primary driver behind the increases in revenue was the continued deployment of capital, which increased the Company’s investments.

Provision for Credit Losses and Security Impairment Expense

SWK recognized loan credit loss provision expense of $8.1 million and $10.7 million during the three and nine months ended September 30, 2015, respectively, on three term loans for two borrowers based on the Company’s impairment analysis performed as of September 30, 2015. The secured loans’ carrying values have been reduced to their respective collateral’s fair market value, less costs to sell. The Company also recognized impairment expense on one equity security of $3.2 million, to reflect the security at its fair market value as of September 30, 2015.

Costs and Expenses

General and administrative expense consists primarily of employee compensation, stock-based compensation and related costs for employees, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expense was $0.5 million for the three months ended September 30, 2015 compared to $1.1 million for the three months ended September 30, 2014. The decline in expense was attributable to lower stock compensation expense as well as lower incentive compensation expense. For the nine months ended September 30, 2015, $2.6 million of general and administrative expense remained relatively flat compared to $2.5 million for the nine months ended September 30, 2014 as higher legal, office rent and other administrative expenses were essentially offset by lower stock and incentive compensation expense as noted above. For the three months ended September 30, 2015, there was no interest expense compared to $0.1 million during the three months ended September 30, 2014, due under the then outstanding loan agreement. Interest expense for the nine months ended September 30, 2015, was $0.4 million, reflecting the write-off of the remaining unamortized deferred issuance costs upon the expiration of the draw period under our credit agreement. Interest expense for the nine months ended September 30, 2014, was $0.6 million and included $0.5 million of interest due under the loan agreement and $0.1 million of deferred issuance costs amortization.

Other Expense

Other expense for the three months ended September 30, 2015, reflected a net fair market value loss of $2.0 million, on SWK’s warrant derivatives compared to a $0.6 million loss during the three months ended September 30, 2014. Other expense for the nine months ended September 30, 2015, reflected a net fair market value loss of $3.2 million, on SWK’s warrant derivatives compared to $0.2 million loss during the nine months ended September 30, 2014.

Liquidity and Capital Resources

As of September 30, 2015, SWK had $24.8 million in cash and cash equivalents compared to $58.7 million in cash and cash equivalents as of December 31, 2014.

Net Income and Non-GAAP Adjusted Net Income for the Third Quarter Ended September 30, 2015

Net income under generally accepted accounting principles in the U.S. (“GAAP”) for the three months ended September 30, 2015, was a loss of $5.8 million, or ($0.44) per share. The table below eliminates provisions for income taxes and non-cash mark-to-market changes on warrant assets and warrant liability. The following tables provide a reconciliation of our reported (GAAP) statements of operations to the Company’s adjusted statements of operations (Non-GAAP) for the three months ended September 30, 2015, and 2014:

(in thousands, except per share data)

 

 

 

 

 

 

Quarter Ended September 30, 2015

 

Quarter Ended September 30, 2014

Income (loss) before provision for income tax

$

(8,077)

 

$

1,876

Plus fair market value loss relating to warrants

 

1,963

 

 

570

Adjusted income (loss) before provision for income tax

$

(6,114)

 

$

2,446

Adjusted provision for income taxes

 

Non-GAAP consolidated net income (loss)

 

(6,114)

 

 

2,446

Non-GAAP net income attributable to non-controlling interests

822

 

944

Non-GAAP net income (loss) attributable to SWK Holdings Corporation Stockholders

$

(6,936)

 

$

1,502

 

 

 

 

 

 

Adjusted Non-GAAP basic income (loss) per share

$

(0.53)

 

$

0.22

Adjusted diluted income (loss) per share

$

(0.53)

 

$

0.22

The Company reports its financial results in accordance with GAAP (sometimes referred to herein as “reported”). 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. In the presentation above, management has eliminated the following non-cash items: (i) fair-market value of warrants as mark to market changes are non-cash, and (ii) income taxes as the Company has substantial net operating losses to offset against future income. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s 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.

Stock Splits

On October 7, 2015, the Company executed a 1-for-100 reverse stock split of its common stock, followed by a 10-for-1 forward stock split of its common stock. The stock split was approved at SWK’s 2015 Annual Meeting of Stockholders held on May 20, 2015. At the effective time of the reverse stock split, every 100 shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, with no change in par value per share. Holders with less than 100 shares of common stock had their shares repurchased and retired by the Company in the reverse stock split and received cash in lieu of such shares. After the reverse stock split, the Company effected a forward stock split pursuant to which shareholders received 10 shares of common stock for each share of common stock held. No fractional shares were issued in connection with the forward stock split. Stockholders who would otherwise be entitled to receive a fractional share received a cash payment in lieu thereof at a rate of $1.425 per fractional pre-split share. The Company paid $213,000 to repurchase shares from holders with less than 100 shares upon the initial 1-for-100 reverse stock split as well as the fractional shares resulting from the 10-for-1 forward stock split. The 14,714 shares repurchased were retired by the Company upon repurchase. For stockholders owning greater than 100 shares prior to the reverse stock split, the net effective ratio was a 10-to-1 reverse split. The number of shares of common stock underlying the Company’s options, warrants, or other rights to acquire shares of common stock was adjusted accordingly. As a result, each stockholder’s percentage ownership interest and proportional voting power remains substantially unchanged and the rights and privileges of the holders of the Company’s common stock are substantially unaffected. Chief Executive Officer Change SWK also announced today that Brett Pope, the Company’s Chief Executive Officer, has given notice that he will resign effective January 12, 2016, to pursue other interests. He will also resign from SWK’s board of directors effective January 12, 2016. SWK’s board of directors has promoted Winston Black, currently Managing Director, to the role of Chief Executive Officer, effective upon Mr. Pope’s departure. Messrs. Pope and Black joined SWK in May 2012 to launch the Company’s specialty finance business. Michael Weinberg, Chairman of the Board, stated, “We appreciate Brett’s many contributions to the Company over the last three years and wish him the best in his future endeavors. Brett and Winston have effectively built a reputable life science finance platform and we believe SWK is well-positioned for the future. The Company is in capable hands going forward with Winston filling the CEO role.“ 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 our 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 our 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 our future financial results and could cause our actual results to differ materially from those expressed in forward-looking statements contained in our Annual Report on Form 10-K. 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 our actual results to differ materially from expected and historical results. 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 CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) Derived from unaudited financial statements

 

September 30, 2015

 

December 31, 2014

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

24,770

 

$

58,728

Accounts receivable

 

1,494

 

 

1,053

Finance receivables

 

122,915

 

 

93,347

Marketable investments

 

2,915

 

 

4,849

Investment in unconsolidated entities

 

8,239

 

 

9,044

Deferred tax assets

 

21,721

 

 

20,106

Warrant assets

 

2,113

 

 

679

Debt issuance costs

 

 

 

381

Other assets

118

 

32

Total assets

$

184,285

 

$

188,219

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable and accrued liabilities

$

826

 

$

864

Warrant liability

467

 

421

Total liabilities

 

1,293

 

 

1,285

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:(1)

 

 

 

 

 

    Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

 

 

 

    Common stock, $0.001 par value; 250,000,000 shares authorized;13,125,167 and 13,105,830 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

 

13

 

 

13

    Additional paid-in capital

 

4,432,993

 

 

4,432,482

    Accumulated deficit

 

(4,254,324)

 

 

(4,250,428)

    Accumulated deficit

(124)

 

      Total SWK Holdings Corporation stockholders’ equity

 

178,558

 

 

182,067

    Non-controlling interests in consolidated entities

4,434

 

4,867

      Total stockholders’ equity

182,992

 

186,934

Total liabilities and stockholders’ equity

$

184,285

 

$

188,219

(1)Common stock, additional paid in capital and share data at September 30, 2015 and December 31, 2014 have been adjusted retroactively to reflect a net 10-for-1 reverse stock split effected October 7, 2015.

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

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2015

 

2014

 

2015

 

2014

Revenues

 

Finance receivable interest income, including fees

$

3,987

 

$

1,850

 

$

12,098

 

$

5,866

Marketable investments interest income

 

88

 

91

 

265

 

269

Income related to investments in unconsolidated entities

 

1,621

 

1,769

 

4,511

 

4,465

Other

11

 

8

 

35

 

149

Total Revenues

5,707

 

3,718

 

16,909

 

10,749

Costs and expenses:

 

Provision for credit losses

 

8,131

 

 

10,725

 

Security impairment expense

 

3,230

 

 

3,230

 

Interest expense

 

 

141

 

381

 

553

General and administrative

460

 

1,131

 

2,622

 

2,542

Total costs and expenses

11,821

 

1,727

 

16,958

 

3,095

Other expense:

 

Unrealized net loss on derivatives

(1,963)

 

(570)

 

(3,151)

 

(197)

Income (loss) before provision for income tax

 

(8,077)

 

 

1,876

 

 

(3,200)

 

 

7,457

Provision (benefit) for income tax

(3,121)

 

500

 

(1,615)

 

1,798

Consolidated net income (loss)

 

(4,956)

 

 

1,376

 

 

(1,585)

 

 

5,659

Net income attributable to non-controlling interests

822

 

944

 

2,311

 

2,378

Net income (loss) attributable to SWK Holdings Corporation Stockholders

$

(5,778)

 

$

432

 

$

(3,896)

 

$

3,281

Net income (loss) per share attributable to SWK Holdings Corporation Stockholders

 

Basic

$

(0.44)

 

$

0.06

 

$

(0.30)

 

$

0.65

Diluted

$

(0.44)

 

$

0.06

 

$

(0.30)

 

$

0.65

Weighted Average Shares(2)

 

Basic

12,991

 

6,729

 

12,986

 

5,018

Diluted

12,991

 

6,757

 

12,986

 

5,022

(2) Share data has been adjusted retroactively to reflect a net 10-for-1 reverse stock split effected October 7, 2015.

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

 

Nine Months Ended September 30,

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

Consolidated net income (loss)

$

(1,585)

 

$

5,659

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Income from investments in unconsolidated entities

 

(4,511)

 

 

(4,465)

Provision for loan credit losses

 

10,725

 

 

Security impairment expense

 

3,230

 

 

Change in fair value of warrants

 

3,151

 

 

197

Deferred income tax provision (benefit)

 

(1,615)

 

 

1,798

Loan discount amortization and fee accretion

 

(1,346)

 

 

(206)

Interest income in excess of cash collected

 

(759)

 

 

(894)

Stock-based compensation

 

495

 

 

755

Debt issuance cost amortization

 

381

 

 

107

Property and equipment depreciation

 

4

 

 

2

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(441)

 

 

(168)

Prepaid expenses and other assets

 

(40)

 

 

(505)

Accounts payable and other liabilities

(38)

 

328

Net cash provided by operating activities

7,651

 

2,608

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Cash distributions from investments in unconsolidated entities

 

5,316

 

 

5,543

Net increase in finance receivables

 

(44,227)

 

 

(11,672)

Investment in marketable securities

 

 

 

(1,500)

Marketable investment principal payment

 

80

 

 

Purchases of property and equipment

 

(50)

 

 

(1)

Net cash (used in) investing activities

(38,881)

 

(7,630)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net proceeds from issuance of common stock

 

16

 

 

74,499

Net repayment of loan credit agreement

 

 

 

(5,000)

Distributions to non-controlling interests

(2,744)

 

(2,958)

Net cash (used in) provided by financing activities

 

(2,728)

 

 

66,541

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(33,958)

 

 

61,519

Cash and cash equivalents at beginning of period

58,728

 

7,664

Cash and cash equivalents at end of period

$

24,770

 

$

69,183

CONTACT: SWK Investor Relations at (972) 687-7251 or investor.relations@swkhold.com.