SWK Holdings Corporation

Good morning and welcome to the SWK Holdings Corporation first quarter 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jason Rando with Tiberand Strategic Advisors. Please go ahead.

Good morning, everyone, and thank you for joining SWK Holdings' first quarter 2023 financial and corporate results call. Earlier this morning, SWK Holdings issued a press release detailing its financial results for the three months ended March 31st, 2023. The press release can be found in the investor relations section of swkhold.com under news releases. Before beginning today's call, I would like to make a statement regarding forward-looking statements. Today, we'll be making certain forward-looking statements about future expectations, plans, events, and circumstances. Include statements about our strategy, future operations, and the development of our consumer and drug product candidates, plans for future potential product candidates, and studies and expectations regarding our capital allocation and cash resources. These statements are based on current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk factors section of SWK Holdings 10-K, filed with the SEC, and other filings we make with the SEC from time to time. SWK Holdings disclaims any obligation to update information contained in those forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me from SWK Holdings on today's call are Jody Staggs, President and CEO, and Yvette Heinrichsen, Chief Financial Officer. They'll provide an update on SWK's first quarter 2023 corporate and financial results. Jody, go ahead.

Thank you, Jason, and thanks to everyone for joining our first quarter conference call. First quarter results were in line with our expectations as financial segment non-GAAP net income totaled $7.3 million, representing a 12% annualized return on tangible finance book value. This is a solid baseline return for our lending strategy, although we believe we can improve on this figure through continued diligent underwriting combined with appropriate balance sheet leverage. Our gross total investment assets reached an all-time high of $250 million, which is an increase from $238 million at the end of 2022 and $196 million at March 31, 2022. This quarter, we implemented the current expected credit losses model, better known as CECL. CECL implementation resulted in an $11.8 million allowance for credit losses which bridges to the $238 million net total investment assets reported at period end. The CESA allowance is not allocated to a specific finance receivable nor is driven by a view on any specific finance receivable. SABK worked with a consultant to calculate an appropriate CESA reserve using our historical loss rates as well as competitor loss rates. Through this analysis, we concluded an approximately 4% reserve against our funded and unfunded finance receivables is appropriate at this time. Based on our typical five-year loan maturity, this translates to a roughly 80 basis point per year loss rate. This allowance was charged to our accumulated deficit, and after adjusting for a change in our deferred tax asset, resulted in a $9.7 million reduction in book value. Our portfolio effective yield was 15.5%. up from 13.9% in first quarter 2022 and around an all-time high. Our tailored financing solutions are well-suited for the current market environment, and we're issuing new term sheets with a mid- to high-teens cost of capital. Turning to the portfolio credit quality, you will see in our 10-Q, we disclosed our internal credit scores for the first time. We score our loans 1 through 5, with 5 being the highest score. With the exception of the $11.8 million Flonix non-accrual position, all SABK loans were rated three or better as of the first quarter of 2023. We continue to work with Flonix to achieve a resolution. We are also in regular communication with boards that will require additional funding during 2023. We score our royalties green, yellow, and red. For the first quarter of 2023, 84% of our royalties were scored green. The $4.2 million ideal royalty and the legacy $2.9 million best royalty are the majority of the non-green royalty positions. We are in regular communications with ideal and working to achieve a resolution. The turnaround at our interest subsidiary continues with total interest operating expenses declining from $2.6 million in fourth quarter 2022 to $1.4 million as of first quarter 2023. While there will be one-time charges in the second quarter from former employee severance, current employee retention payments, some final R&D program costs, and strategic review costs, the first quarter 2023 OpEx run rate is a reasonable normalized operating expense level for Interis. Additionally, we are excited with the $7 million of CDMO proposals Interis has bid on year-to-date. A material portion of these bids were driven by our relationship with a large pharma service organization. While it's too early to forecast our close rate, these are warm leads, and we expect a strong pipeline to drive revenue growth in the second half of 2023. As previously discussed, we are working with an advisor to evaluate strategic alternatives for Interis and will provide an update when appropriate. During the quarter, we repurchased 28,766 shares through our 10B51 program. And year-to-date, we have repurchased nearly 50,000 shares. Minor correction from the press release, post-quarter close, we have repurchased over 18,000 shares for approximately $318,000 or $17.57 a share. I think the press release is at $400,000. Our current program expires May 15th, and I expect our board will approve a new 10b-5 program that we believe will have benefits over the old program, ideally allowing us to repurchase a greater number of shares. To summarize, the first quarter of 2023 was a solid quarter for our financial segment, with $7.3 million of segment adjusted net income, a very strong 12% return on book, and 15.5% effective yield. We are working with our two non-accrual borrowers to seek a positive resolution and are in regular communications with borrowers that need access to capital markets near term. The new loan environment is attractive, and we're pursuing balance sheet capital to deploy into this opportunity. With that, I would like to turn the call to our CFO, Yvette Heinrichsen, for an update on our financial performance for the quarter. Yvette, the call is yours.