SWK Holdings Corporation

questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jason Rando. Sir, the floor is yours.

Good morning, everyone. Thank you for joining SWK Holdings' first quarter 2024 financial and corporate results call. Yesterday evening, SWK Holdings issued a press release detailing its financial results for the three months ended March 31st, 2024. The press release 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'll be making certain forward-looking statements about future expectations, plans, events, and circumstances, including statements about our strategy, future operations, and our 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. 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 these forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me from SWK Holdings on today's call is Jody Stacks, President and CEO. who will provide an update on SWK's first quarter 2024 corporate and financial results. Jody, go ahead.

Thank you, Jason, and thanks to everyone for joining our first quarter conference call. SWK's first quarter of 2024 results were highlighted by 24% growth in finance segment revenue to a near all-time high of $11.5 million, while our interest segment signed an exclusive option and purchase agreement with a strategic partner, that reduces the operating burden and may lead to the acquisition of certain CDMO-related tangible assets. SWK's core business is financing commercial-stage life science product companies through first-line term loans and royalties with a focus on $5 million to $25 million investments. We have concentrated on this niche for over a decade and have developed an extensive network and strong experience spanning the three core functions of a direct credit firm, origination, underwriting, and portfolio management. These capabilities were evidenced during the first quarter as our finance segment generated a 10.3% year-over-year increase in gross finance receivables portfolio to $274.5 million, coupled with a 14.2% effective yield and 16.3% realized yield. These achievements led to a 24% year-over-year increase in segment revenue to $11.5 million. This performance enabled our finance segment to remain profitable in the quarter, generating $1 million of gap net income and $2.7 million of adjusted non-gap net income, despite being negatively impacted by a $6 million impairment in our loan book. We are constructive on the life science finance market and are actively pursuing multiple loan and royalty opportunities, while remaining cognizant of increased competition in certain pockets of the life science finance market. While many of our competitors have grown to a size where they must focus on large, sponsored-back opportunities, We believe STBK's focus on the less competitive sub-$25 million market remains a competitive differentiator. During the first quarter, our Interest Division signed an exclusive option and asset purchase agreement with a strategic partner, granting the partner a two-year exclusive option to purchase certain interest tangible assets in exchange for option fees and guaranteed revenue payments. In April, we received the first low single-digit million dollar option fee. The guaranteed revenue payments are chewed up every six months, and we expect to receive the first guaranteed revenue payment in the third quarter. Our first quarter financial results did not include any revenue from either the option fee or guaranteed revenue payments. As we highlighted on our fourth quarter call, the agreement immediately reduces the cash burnout in Terrace, and we believe the business will be breakeven or better over the duration of the agreement. The agreement also provides our colleagues at Interest the opportunity to work with our partner to increase the project pipeline and generate new business. while allowing SWK to prioritize our specialty finance business focused on investing in small and mid-sized commercial stage life science companies. Turning to our share repurchase program, we bought back 58,298 shares at a total cost of $1 million during the quarter. Since quarter closed, we've repurchased an additional 19,000 shares for a total cost of $300,000. At March 30th, 2024, our book value per share was $22.46, a 5% increase compared to $21.39 in the year-ago period. Non-GAAP tangible financing book value per share totaled $19.69, an approximately 17% increase from the year-ago period. For the first quarter of 2024, the realized yield of the finance receivables portfolio was 16.3% versus 15%, approximately 15% for the same period in the prior year. In summary, first quarter of 2024 was largely as expected with the exception of the $6 million loan impairment. For the remainder of 2024, we will prioritize selectively closing commercial stage life science loan and royalty transactions that fit our underwriting criteria, working with our non-accrual borrower partners to realize positive outcomes, exploring paths for additional capital, and returning capital to shareholders via our buyback program. With that, let's open the call to questions.