SWK Holdings Corporation

Good morning, and welcome to the SWK Holdings Third Quarter 2023 Corporate and Financial Results Conference Call. All participants will be in a listen-only mode. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. And to withdraw a question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Jason Randall at Tiber and Strategic Advisors. Please go ahead.

Good morning, everyone, and thank you for joining SWK Holdings' third 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 September 30th, 2023. Fresh leads can be found in the investor relations section of swkhole.com under news releases. Before beginning today's call, I would like to make the following statement regarding forward-looking statements. Today, we're 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 capital allocation and cash resources. These statements are based on our current expectations and should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those details 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 looking statements. whether as a result of new information, future events, or otherwise. Joining me for SWK Holdings on today's call are Jody Staggs, President and CEO, and Yvette Heinrichsen, Chief Financial Officer. They will provide an update on SWK's third quarter 2023 corporate and financial results.

Jody, go ahead. Thank you, Jason, and thanks, everyone, for joining our third quarter conference call. During the third quarter, our core finance business generated healthy returns while our entire subsidiary grew revenue, reduced costs, and moved closer to profitability. We achieved a key 2023 strategic goal of improving our balance sheet via the issuance of a $33 million senior note, as well as a $15 million increase in our credit facility to $60 million. We appreciate our underwriters' work to complete the bond offering in a challenging environment. We are also thrilled to partner with our new bank group member, Wood Forest, and appreciate the work the Wood Forest team undertook to evaluate our business. With the added capital, we have over $60 million of liquidity to deploy into an attractive opportunity set. We believe raising this capital has several benefits. First, we are able to play offense at a time when other funding sources have pulled back. Second, we believe a larger and more diversified portfolio may lead to a lower cost of capital for SWK. Finally, During our prior strategic review process, we learned that interested parties value a larger and more diversified portfolio, which this financing will allow. Our gross financial receivables totaled $235 million at quarter's end, a 10% increase from the prior year. We closed one $5 million transaction during the quarter, and after quarter end, we closed two term loans totaling $26 million. The new deal pipeline remains strong with multiple royalty and loan opportunities. and we anticipate closing additional financing in the coming months. We are issuing new proposals at a 15% plus IRR while targeting the best risk-reward opportunities. Our portfolio effective yield was 14%, a 30 basis points decrease compared to third quarter of 2022. Our realized yield in the quarter was 14.7%, a decline from 17.5% in the third quarter of 2022. There were no early prepayments during this quarter. Looking at credit quality, we rate our loans one to five, with five being the highest score. During the quarter, we had two loans rated, scored as a two. The remaining loans were rated three or better. One of the two rated loans is our financing to Trio Healthcare, which was placed on non-accrual at quarter's end. We are working with management to achieve a satisfactory resolution. Our core business is financing pre-profitability commercial stage life science companies. We are regularly speaking with our borrowers to ensure they appreciate the challenging macro and capital markets conditions. We believe our borrower partners understand this dynamic and have taken steps to reduce costs and raise capital to weather the challenging conditions. We rate our royalties green, yellow, and red. The three non-accrual royalties, Best, Ideal, and Polonix, are rated as reds. Two royalties are rated yellow, with the remaining royalties rated green. and green-rated royalties account for 55% of the royalty portfolio. Tangible book value per share increased to $19.35 per share, a 6% year-over-year increase after adjusting for the implementation of CECL. Results in Interest continues to improve, driven by the hard work of the team and support from our strategic partner. Revenue increased 72% sequentially to $0.3 million, and we expect strong revenue growth in the fourth quarter. Year to date, we have booked $2.7 million of CDMO projects and are bidding on an additional $5 million of projects. The headline bid number is down from the prior quarter as we removed two large legacy opportunities. Neither came from our strategic partner, and while both remain possibilities, they have been delayed, and we thought it prudent to remove them from the count. Through our strategic partnership, we are currently working on approximately 18 projects from a variety of underlying customers. Third quarter 2023 in-terrace operating expense totaled $1.2 million compared with $2.6 million in the third quarter of 2022. We view the third quarter 2023 in-terrace quarterly operating expense as a reasonable quarterly run rate. Third quarter 2023 in-terrace EBITDA loss was $900,000, an improvement from a $2.5 million loss in the third quarter of 2022 after adjusting for a $5 million CARA milestone payment in the year-ago quarter. We are deepening the relationship with our strategic partner and are working with the team and our partner to improve interest profitability and increase subsidiary value. During the quarter, we repurchased 60,335 shares of stock for approximately $1 million. And year-to-date, we have repurchased 361,593 shares for a total cost of $6.1 million. We'll be repurchasing shares at the current discounted book value as an attractive use of capital. To summarize, during the third quarter of 2023, we added capital to our balance sheet at a time when deployment yields are attractive. Our entire segment reduced burn and continues to improve its value proposition to our strategic partner, and our financial segment generated healthy returns while closing additional loans. We are focused on prudently deploying the recently raised capital in attractive loans and royalties while working with our current portfolio partners to navigate the challenging business environment. With that, I would like to turn the call to our CFO, Yvette Henderson, for an update on our financial performance for the quarter. Yvette, the call is yours.