SWK Holdings Corporation

Good afternoon and welcome to the SWK Holdings Corporation Second Quarter 2023 Corporate and Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the call over to Jason Rando with T. Burrent Strategic Advisors. Please go ahead.

Good evening, and thank you for joining SWK Holdings' second quarter 2023 financial and corporate results call. Earlier today, SWK Holdings issued a press release detailing its financial results for the three months ended June 30, 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 follow-up statement regarding forward-looking statements. Today I will be making certain forward-looking statements about future expectations, plans, events, and circumstances, including statements about our strategy, future operations, and the development of 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 our current expectations and you should not place undue reliance on these statements. Action 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 these four statements, whether as a result of new information, future events, or otherwise. Joining me from SWK holding on today's call are Jody Staggs, President and CEO, and Yvette Heinrichsen, Chief Financial Officer. They'll provide an update on SWK's second quarter 2023 corporate and financial results.

Jody, go ahead. Thank you, Jason, and thanks, everyone, for joining our second quarter conference call. During the second quarter, we made progress on several key initiatives, including closing a new $45 million credit facility, continuing the operational and financial turnaround into tariffs, and concluding two long-running workouts. Our financing business remains healthy, and we generated a 15.4% realized yield during the quarter and are working towards multiple new financing closings by year's end. Tangible book value per share increased to 18.95 per share, an 8% year-over-year increase after adjusting for the implementation of CECL. During the quarter, we repurchased $4.6 million of shares at an average price of $16.88, a 23% discount to the GAAP book value of $21.79. There is much to be excited about at SWK. Second quarter results were largely in line with internal expectations as financial segment non-GAAP net income totaled $7.6 million, representing a 12% analyzed return on tangible book value. While we are pleased with the 12% return, we aim to improve on it through diligent underwriting of life science loans and royalties, coupled with appropriate balance sheet leverage. Our gross investment assets total $234 million, compared with $249 million at March 31, 2023, and $175 million at June 30, 2022. The sequential decline is primarily due to the sale of our Acer loan to a third party for approximately $14 million. Our portfolio effective yield was 14.5% compared with 15.5% in the first quarter of 2023. The sequential decrease is primarily due to the divestiture of the Acer loan. Our realized yield in the quarter was 15.4% compared with 15.3% in the first quarter of 2023. There were no early prepayments during the quarter. Looking ahead, our realized yield should benefit from the recent reference rate increase as well as pricing discipline on new financing proposals. Turning to the portfolio, during the quarter, we finalized the work out for the Fluonix loan, and after quarter's close, we finalized the work out for the ideal royalty. In both situations, we received cash at close with a majority of recovery expected from future royalties. At this time, we believe the cash received combined with estimated future royalties will exceed the carrying value at position, Thus, we do not anticipate taking an impairment on either position. However, both positions will remain on non-accrual. Looking at credit quality, we rate our loans 1 through 5, with 5 being the highest score. During the quarter, we had one loan scored as a 2, while the Philonix loan, which has been a workout for several quarters with the discussed resolution achieved in late second quarter of 2023, was scored a 1. The remaining loans were rated 3 or better. We rate our royalties green, yellow, and red, and the ideal and best non-accrual royalties were rated red, while remaining royalties were rated green. Results in Interest continued to improve and were in line with internal expectations. Revenue increased 55% sequentially to $200,000, and we expect revenue to accelerate in third quarter and fourth quarter based on work generated from our form of service partnership, which was signed in late April. Year to date, we have booked $2 million of CDMO projects and are bidding on an additional $9 million projects, which is an increase from $7 million projects we were bidding on last quarter. Second quarter in-terrace operating expense totaled $2.5 million, compared with $1.4 million as of first quarter of 2023. However, the second quarter included a final R&D payment as well as employee retention payments, which cumulatively totaled approximately $1 million. We expect the in-terrace quarterly OPEX will be approximately $1.5 million per quarter in the back half of 2023. We are working with an advisor to evaluate strategic alternatives for interest and will provide an update when appropriate. During the quarter, we closed a $45 million committed financing with First Horizon Bank, which replaced our prior $35 million facility. The new facility gives STPK additional liquidity as well as flexibility to pursue other balance sheet capital options. During the quarter, we repurchased 272,492 shares at an average cost of $16.88. And year-to-date, we have repurchased approximately 327,000 shares for $5.6 million at an average cost of $16.96. We view repurchasing shares at the current level as a highly attractive use of shareholders' capital. To summarize, the second quarter of 2023 was a solid quarter for our financial segment with a 12% return on tangible equity. we were able to conclude workout process for two of our non-accrual loans with reasonable outcomes. We're pursuing multiple core life science financings with attractive returns and expect to close additional transactions by year-end. And our new credit facility provides additional liquidity plus flexibility going forward. With that, I would like to turn the call to our CFO, Yvette Heinerson, for an update on our financial performance for the quarter. Yvette, the call is yours.