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SWK Holdings(SWKH) - 2024 Q4 - Annual Report
SWKHSWK Holdings(SWKH)2025-03-20 11:29
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Financial Performance - Revenues increased to 45.0millionfortheyearendedDecember31,2024,upfrom45.0 million for the year ended December 31, 2024, up from 37.8 million in 2023, representing a 19.0% increase[179]. - The provision for credit losses rose significantly to 12.8millionin2024from12.8 million in 2024 from 1.9 million in 2023, primarily due to an 8.1millionimpairmentontheTrioloan[180].−Interestexpenseincreasedto8.1 million impairment on the Trio loan[180]. - Interest expense increased to 4.7 million in 2024 from 1.8millionin2023,ariseof161.11.8 million in 2023, a rise of 161.1%, mainly due to the issuance of approximately 32.9 million in Notes[182]. - Pharmaceutical manufacturing, research and development expenses decreased to 2.2millionin2024from2.2 million in 2024 from 3.4 million in 2023, a decline of 35.3%[183]. - Other income, net increased to 6.8millionin2024,comparedtoimmateriallevelsin2023,drivenbyvariousgainsincludinga6.8 million in 2024, compared to immaterial levels in 2023, driven by various gains including a 2.5 million gain on revaluation related to the Iluvien royalty[187]. - Income tax expense increased to 4.9millionin2024fromabenefitof4.9 million in 2024 from a benefit of 1.3 million in 2023, reflecting a change in the effective tax rate to 26.6%[188]. - The finance receivables portfolio contained 277.8millionofnetfinancereceivablesasofDecember31,2024,expectedtogeneratepositivecashflowsin2025[192].−Thecompanygenerated277.8 million of net finance receivables as of December 31, 2024, expected to generate positive cash flows in 2025[192]. - The company generated 40.8 million in finance receivable interest income for the year ended December 31, 2024[212]. Financial Position - As of December 31, 2024, the company had 5.9millionincashandcashequivalents,anincreaseof31.15.9 million in cash and cash equivalents, an increase of 31.1% from 4.5 million in 2023[189]. - Total current assets increased to 20.3millionin2024from20.3 million in 2024 from 11.9 million in 2023, representing a growth of approximately 71.5%[217]. - Total liabilities decreased to 43.5millionin2024from43.5 million in 2024 from 53.9 million in 2023, a reduction of about 19.2%[217]. - Stockholders' equity increased to 288.7millionin2024from288.7 million in 2024 from 280.3 million in 2023, reflecting a growth of approximately 3.0%[217]. - The company reported a decrease in accumulated deficit from 4.14billionin2023to4.14 billion in 2023 to 4.13 billion in 2024, indicating a slight improvement[217]. - The company’s marketable investments increased significantly from 48,000in2023to48,000 in 2023 to 580,000 in 2024[217]. - The company’s deferred tax assets decreased from 28.3millionin2023to28.3 million in 2023 to 23.5 million in 2024, a decline of approximately 16.9%[217]. Business Segments - The company operates in two segments: Finance Receivables and Pharmaceutical Development, reflecting its business performance evaluation[154]. - The Finance Receivables segment focuses on transactions under 50million,fillinganunderservednicheinthemarket[21].−Themajorityoffinancereceivablestransactionsarestructuredsimilarlytofactoringtransactions,providingcapitalinexchangeforaninterestinexistingrevenuestreams[24].−ThePharmaceuticalDevelopmentsegmentwasinitiatedwiththeacquisitionofEnterisBioPharma,whichprovidesdevelopmentservicesandinnovativeformulationsolutions[28].−Thepharmaceuticaldevelopmentsegmentengagesincollaborationandlicensingagreements,whichincludeupfrontlicensefeesandroyaltiesonnetsales[168].RisksandChallenges−ThecompanyfacescompetitionfromlargerentitieswithgreaterfinancialresourcesinbothFinanceReceivablesandPharmaceuticalDevelopmentsegments[29][30].−Thepharmaceuticalindustryfacesrisksrelatedtocompetition,governmentregulation,productliability,andpatentexclusivity,whichcouldadverselyaffectthecommercialsuccessofproductsandservices[49].−Thecompanyreliesonthird−partypayorsforadequatereimbursement,andanychangesinreimbursementpoliciescouldcompromiseproductsuccess[46].−TheperformanceoftheFinanceReceivablessegmentisheavilydependentontheunderlyingperformanceofpartnercompanies,whicharesubjecttovariousrisks[55].−Thecompanymayexperiencesignificantgainsorlossesbasedonmanagement′sassumptionsandestimatesregardingvaluations,interestrates,andinvestmentreturns[50].−ThetransitionfromLIBORtoalternativereferenceratescouldmateriallyimpactthevalueandliquidityofportfoliosecurities[65].−Limitedaccesstoinformationaboutprivately−heldroyaltystreamsmayhinderinformedinvestmentdecisions[56].−Thecompanymayfacechallengesincompletingtransactionswithoutco−investmentsfromthirdparties,impactingoperationalresults[58].−Theallowanceforcreditlossesmayproveinadequateifthecreditqualityofpartnercompaniesdeclines[64].−Prepaymentsofdebtinvestmentsbypartnercompaniescouldadverselyaffectresultsofoperationsandreturnonequity[57].−Thecompanydoesnotcontrolpartnercompanies,whichmaymakedecisionsthatdonotalignwithitsinterests,potentiallyleadingtoadversefinancialconsequences[51].−Thecompanyfacesrisksrelatedtoproductliabilityclaimsfromhumantestingandmanufacturing,whichcouldresultinsignificantcostsandadversepublicity[70].−Changesintaxlawscouldadverselyaffectthecompanyanditsshareholders,withpotentialretroactiveapplicationsimpactingtaxliabilities[78].−Thecompanymayencounterdifficultiesinintegratingacquisitionsorseparatingdivestedsegments,affectinganticipatedbenefitsfromsuchtransactions[80].−ThecompanymusteffectivelymanagegrowthinitsFinanceReceivablessegmenttoachievebusinessobjectives,withfailurepotentiallyleadingtoadverseeffectsonfinancialcondition[69].CapitalandFinancing−Thecompanyplanstofundtransactionsthroughitsownworkingcapital,revolvingcreditfacility,andbyraisingadditionalthird−partycapital[20].−AsofDecember31,2024,thecompanyhad50 million, filling an underserved niche in the market[21]. - The majority of finance receivables transactions are structured similarly to factoring transactions, providing capital in exchange for an interest in existing revenue streams[24]. - The Pharmaceutical Development segment was initiated with the acquisition of Enteris BioPharma, which provides development services and innovative formulation solutions[28]. - The pharmaceutical development segment engages in collaboration and licensing agreements, which include upfront license fees and royalties on net sales[168]. Risks and Challenges - The company faces competition from larger entities with greater financial resources in both Finance Receivables and Pharmaceutical Development segments[29][30]. - The pharmaceutical industry faces risks related to competition, government regulation, product liability, and patent exclusivity, which could adversely affect the commercial success of products and services[49]. - The company relies on third-party payors for adequate reimbursement, and any changes in reimbursement policies could compromise product success[46]. - The performance of the Finance Receivables segment is heavily dependent on the underlying performance of partner companies, which are subject to various risks[55]. - The company may experience significant gains or losses based on management's assumptions and estimates regarding valuations, interest rates, and investment returns[50]. - The transition from LIBOR to alternative reference rates could materially impact the value and liquidity of portfolio securities[65]. - Limited access to information about privately-held royalty streams may hinder informed investment decisions[56]. - The company may face challenges in completing transactions without co-investments from third parties, impacting operational results[58]. - The allowance for credit losses may prove inadequate if the credit quality of partner companies declines[64]. - Prepayments of debt investments by partner companies could adversely affect results of operations and return on equity[57]. - The company does not control partner companies, which may make decisions that do not align with its interests, potentially leading to adverse financial consequences[51]. - The company faces risks related to product liability claims from human testing and manufacturing, which could result in significant costs and adverse publicity[70]. - Changes in tax laws could adversely affect the company and its shareholders, with potential retroactive applications impacting tax liabilities[78]. - The company may encounter difficulties in integrating acquisitions or separating divested segments, affecting anticipated benefits from such transactions[80]. - The company must effectively manage growth in its Finance Receivables segment to achieve business objectives, with failure potentially leading to adverse effects on financial condition[69]. Capital and Financing - The company plans to fund transactions through its own working capital, revolving credit facility, and by raising additional third-party capital[20]. - As of December 31, 2024, the company had 5.8 million in unfunded commitments, indicating potential future financial obligations[196]. - The company entered into a 45.0millionrevolvingcreditfacilityinJune2023,whichwasincreasedto45.0 million revolving credit facility in June 2023, which was increased to 60.0 million in October 2023[190]. - The new Credit Agreement provides for a revolving credit facility with an initial maximum principal amount of 45.0million,whichcanbeincreasedtoatotalof45.0 million, which can be increased to a total of 80.0 million[88]. - The company completed a public offering of 30.0millionof9.0030.0 million of 9.00% Senior Notes due 2027, with net proceeds of approximately 31.9 million after discounts and commissions[90]. - The company's liquidity may be significantly reduced if it cannot secure new debt or equity financing on commercially reasonable terms[91]. - The company may face substantial liquidity problems if it cannot generate sufficient cash flow to service its debt obligations[94]. Shareholder Matters - Funds affiliated with Carlson own 68.7% of the company's common stock, giving them significant influence over management and policies[99]. - The company has entered into a Stockholders' Agreement that allows funds affiliated with Carlson to approve specific transactions, including incurring debt and selling assets over specified amounts[100]. - The trading price of the company's common stock could decline due to substantial sales by significant stockholders, including funds associated with Carlson[101]. - The company has successfully regained compliance with Nasdaq listing standards but cannot assure continued compliance[97]. - The company has not paid any cash dividends on its capital stock and intends to retain cash without anticipating future dividends[148]. - As of December 31, 2024, the company has repurchased a total of 793,411 shares at a cost of 13.5million,averaging13.5 million, averaging 16.99 per share[151]. - The company has a maximum dollar value of approximately $5.4 million of shares that may yet be purchased under the Current Repurchase Program[151]. Management and Governance - As of December 31, 2024, the company had 24 full-time employees, with no representation by labor unions[32]. - The company is dependent on key management personnel for future success, and the loss of any key personnel could materially affect operations[81]. - The company has experienced changes in senior leadership in 2024, which may create uncertainty and impact business performance[82]. - The company has been audited by BPM LLP since 2006, ensuring compliance with PCAOB standards[215]. Cybersecurity and Compliance - The company has implemented cybersecurity policies and procedures, including an incident response plan, to manage risks from cybersecurity threats[139]. - The company has not identified any cybersecurity incidents that have materially affected its business or financial condition[140]. - Cybersecurity incidents could adversely impact the company's financial condition and business operations, with potential liabilities arising from data breaches[114]. - The company operates without information barriers in its Finance Receivables segment, which may expose it to risks related to material non-public information[112]. Market and Economic Conditions - The ongoing COVID-19 pandemic has resulted in significant disruptions to the global economy, affecting the company's ability to raise capital and the operations of partner companies[117]. - Economic recessions could lead to an increase in non-performing assets and a decrease in the value of the company's portfolio, adversely affecting results of operations[121]. - Changes in healthcare laws and regulations may increase compliance costs for partner companies, potentially impacting their profitability and operations[132]. - The company may face increased scrutiny from regulatory authorities, which could delay or prevent the approval of products developed by partner companies[130]. - The complexity of intellectual property laws poses risks for partner companies, potentially leading to costly litigation and impacting their financial performance[126]. - Future legislation may increase the time and cost required for partner companies to conduct clinical trials, affecting their ability to market products[128]. - The company anticipates that changes in healthcare delivery and payment systems may significantly impact the business model and financial condition of partner companies[133].