Good day, and welcome to the SWK Holdings First Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jason Rando, Tiberend Strategic Adviser. Please go ahead.

Thank you, and good morning, everyone, and welcome to SWK's First Quarter 2020 Financial and Corporate Results Call. Yesterday evening, SWK Holdings issued a press release detailing its financial results for the 3 months ended March 31, 2020. 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 the following statement regarding forward-looking statements. Today we will be making forward-looking statements about future expectations, plans, events and circumstances, including 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 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 Forms 10-K and 10-Q 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 on today's call is Winston Black, Chairman and CEO of SWK Holdings, who will provide an update on SWK's first quarter 2020 corporate and financial results. Winston, go ahead.

Thank you, Jason, and everyone for joining our conference call. The first quarter of 2020 continued what has been a period of significant progress for SWK highlighted by the uplisting of our common stock to the NASDAQ capital market in January. We initiated our strategic growth plan in 2019. We view the potential uplisting of SWK stock to the NASDAQ counter-market as central to the planned success. Reaching this goal is a testament to the fortitude of the SWK team and the value potential we offer as an investment, highlighting the benefit of being on NASDAQ, we are pleased to see our daily trading volume increase when compared to the period prior to when we announced the listing. I would like to see greater trading volume levels generally, we have seen a greater than 300% daily trading volume increase. Additionally, we have seen both a substantial reduction in the number of days when the stock doesn't trade and a substantial increase in higher volume days. We've also seen new shareholders invest in the company. While we have more work to do on our investor and potential shareholder outreach, we are actively working with our Investor Relations firm Tiberend Strategic Advisors to build the best practices of investor communications program to share the SWK story. Before I discuss our first quarter achievements, I'd like to provide a brief update on the COVID-19 situation, and I'm sure it is a top everyone's mind. As we communicated previously, SWK as a business has been minimally impacted by the situation thus far. We are continuing to observe a company-wide work-from-home policy. So some have resumed working out of the office on occasion, and we've halted work-related travel. Though these restrictions can be at times convenient, our small in business structure makes it very manageable.…

[Operator Instructions] Our first question is going to come from Kyle Bauser of Dougherty & Company.

So on the specialty finance side of the business, I appreciate the comments on a couple of new term loan financings, and of course, the continued monitoring of your portfolio companies as it relates to COVID-19. It sounds like the portfolio is well positioned. I'm just kind of curious if you've been exploring any sort of accommodations for your companies, if there have been any amendments or deferrals or anything like that?

Sure. Thanks, Kyle. Great question. And you're right, we are speaking with the companies quite frequently. At this point, we've had to make -- or we have made a few accommodations. But really, the financial results in the first quarter didn't include the full brunt of COVID-19. And so I think probably the second quarter is when we will see more of that. But that said, the portfolio companies seem to be doing everything that we would want them to do in terms of us being in cash, positioning the businesses to kind of weather the storm and be prepared to resume operations as things open back up. So we're, of course, monitoring it, and we'll help companies as needed at this point. It hasn't been that many adjustments.

That makes sense. Great to hear. And regarding your cash on hand, what level of activity has there been in sourcing new deals? Has it moderated quite a bit with COVID-19? I'm just sort of wondering how you're thinking about opportunistic investments out there right now?

Sure. Great question. We think about it every day. It's kind of interesting, kind of as we were approaching the end of March as things began to really shut down. We did see quite a flurry of activity in terms of new transactions. And then as some of the PPP and EIDL facilities became available, everything kind of paused as everyone waited to see kind of what was happening. I think as we started to exit the month of April and as we've kind of been in the last 2 weeks, with people starting to see live in, so to speak, there has been an increase in a lot of activity. We're seeing all sorts of different types of transactions, everything from the traditional royalty monetizations to attritional term loan financing as well as legacy product acquisitions. So we're evaluating all of them and trying to make sure that the ones that are most actionable are the ones that we try to get done.

Sure. Got it. And -- And then just one more, if I may, on the Enteris side. So thanks for the updates on the new management additions. So Dr. Khosla, being appointed CEO of Enteris last week. I know it's very early, but given his extensive background, I'm curious if there are any updated plans to drive that business forward here? In other words, is there an initial focus on anything for Dr. Khosla, whether it's pipeline assets or operations or new partnerships, et cetera?

So he's been in his seat for a little over a week now. So I'm sure he's enjoying drinking from the firehose and getting up to speed. But we're we really the tasking him with really driving our business development outreach, that's really been a key focus of ours, and is an area that probably has the most potential for the company, has a high-return activity in terms of monetizing IP. So that certainly will be a focus of his. And then, of course, as he gets to know the company better and the technology we'll make sure we add more to his plate, but I think that's probably going to be the core initial focus.

Right. Got it. Well, some great updates here, and I appreciate you taking my questions.

Absolutely. I appreciate your interest, Kyle.

Our next question will be from Brooks O'Neil of Lake Street.

My buddy, Kyle Bauser, asked a bunch of really good questions. So I applaud him and I applaud you guys for the answers and both the progress you're making. So I was just hoping I could ask a couple of sort of big picture questions. One -- my first one is, can you just talk a little bit about whether the company is more excited about running operating businesses like Enteris or whether you're more excited about trying to build the financing portfolio or whether you really think you can do both of those things well going forward?

That is a great question, Brooks. I appreciate it very much. I would say that I'm really excited about both of them. There's -- I think as we -- going back to our call when we announced the transaction with the Enteris, we had talked a little bit about the synergies and why they made sense to be together. And I think we continue to have that same viewpoint. I think we've been able to -- from the finance company perspective, we've been able to deepen our integration, if you will, into the general life science sector because of Enteris. . And on the other side, because of our broader kind of reach within the industry, I think that's also been pretty beneficial to Enteris, too. And I think when we look at what will be driving the company's earnings going forward, I think it remains very true in that the most, I guess the highest return on Enteris will be from license agreements in terms of milestones and royalties, which is very much what the specialty finance business does. And so I think as we think about it over the long term, it will be a building portfolio of -- across the board, whether it's our wholly-owned assets that we monetize from Enteris or the astute financing that we do on the specialty finance side. I think those will all be very high return type activities. And I guess I would just say one another to your point, that was one of the reasons why we wanted to increase the breadth of the Enteris management team because while yes, I think got to SWK, know enough to be dangerous. We certainly are not experts in operating businesses. We wanted to position the company as well as possible. We can make sure they had the right expertise. And so as we've noted, bringing in Rajiv and Gary will be very beneficial to that end.

Absolutely. It makes total sense to me. So let me just follow on with what Kyle was asking you about and the way I look at the current environment on the financing side and on the operating side is, I see companies both accessing additional capital, in some cases as a buffer, in some cases just being opportunistic in the current environment. And at the same time, I see the obvious impact of COVID-19 on many companies, business operations. So I'm curious you occupy a kind of an interesting niche out there in the marketplace. Do you see this more as an opportunity for SWK? Or -- do you -- are you more worried about the elevated risk that has been created in the health care economy because of the COVID-19 crisis?

Sure. The -- yes, I guess, I'll start with the elevated risk question. We're obviously very sensitive to general health care shutting down outside of what will be an emergency. I mean that I think if you would have asked me, if you would have kind of laid out the fact of what's happening to me a year ago and then ask you, if I would feel okay, I probably would have totally freaked out, right? . These are very challenging times. But I think as we have lived with this situation for the last 6 to 8 weeks and watched how the portfolio companies have repositioned themselves and how they actually have been able to -- there actually has been a lot more economic activity in the portfolio than we would have expected at least we expected at the end of March. I think from this perspective, we feel really pretty good, frankly. And I think it comes down to the fact that health care is a need. And our portfolio of companies really do feel very important niches within a broader medical community. And so that -- so from a value perspective, while, of course, revenues are down and expenses are now kind of swapping where revenues would potentially cover them. It -- we seem to feel okay because these products need to exist and patients will need to be -- their conditions will need to be addressed. And so from a risk perspective, I think we'll get through it okay. And from an opportunity perspective, you're exactly right, we do see as an opportunity. But I think as we consider deploying our capital you very much want to, one, make sure that we're doing really good deals in this current environment. And we want to make sure we have enough capital to support the portfolio to the extent that we have to. And of course, on Enteris as well as execute on our buyback. So we're trying to be very judicious with our capital because we are about $30 million, is a decent number, that's not $50 million or $100 million. So we do need to be choosing the right and best deals. And so we're being judicious to that effort.

Awesome. Makes sense to be balanced in today's world and I think you guys are doing a great job, thanks for taking my questions.

I appreciate it very much, Brooks.

[Operator Instructions] Our next question will come from [ Matt Stewart ] of HS Capital.

Yes. I had a few questions. A few of them just kind of technical things. I've reviewed how the amortization worked on the 8-K that outlined kind of how Enteris was brought on the balance sheet. I was just curious, was that a matter of accountants just recommending it'd be brought on that way? Or was it -- was there a little bit of discretion where you maybe thought, okay, we'd like to have that. Because I just compared how the intangibles were booked by you guys versus how they were booked when it was just Enteris alone, where they had a lot of the assets they were on there as patent assets, whereas most of the intangibles for you guys is the licensing agreement. Was that just purely an accounting issue? Or is there any kind of different logic behind that?

Sure. Yes. There wasn't much discretion from that perspective. I think when purchase price allocation, we did retain a third-party firm to allocate that. And I think when they look at the -- kind of what the assets are and try to allocate what we paid for, they'd be allocated based on kind of what accounting rules will be dictated. And so that's why, for us, it looks different than for what Enteris was like when it was on its own.

Sure. Okay. Yes, that makes sense. I was just curious. In terms of capital spending for the year, what kind of -- not necessarily the amount, but I kind of was expecting to see a little more this quarter. Is that more in the second half or maybe second quarter? Or what's the pace of that going to be?

You mean...

For Enteris, its capability.

Sure. Yes, just thinking about the timing of certain expenses. I think on the actual CapEx piece, there will be a little bit more, a little more back-end weighted and that's, I think, in part because some of the equipment that had been ordered, the amounts that were due upfront for a small portion of what's due. And so you'll see more of that as we kind of continue in the year. And so I think that probably will -- also from an SG&A perspective, I think that we're -- it won't be as variable as like a CapEx would be, the staff has ramped. I think we're pretty well staffed at this point. So I don't anticipate that there will be a massive increase on OpEx there from that perspective.

Okay. Great. Now I think what's kind of interesting right now is with Enteris and also having kind of a full royalty portfolio or full credit portfolio is? It's to me, you have 2 options, hopefully, going forward. You actually have internal reinvestment opportunities? And then you have -- how you have your external -- also focused externally to find opportunities. I kind of wonder how you kind of divide the opportunity going forward. Looking at some of your portfolio companies, some of them seem to have really promising technology. One of them 4Web I saw they've certainly probably going to stop now, but prior to that had some tremendous growth. So I was just curious how you weighed the opportunities within your portfolio versus kind of getting involved in new stuff?

Sure. I guess I would say there's probably not an exact science, so to speak, when you look at it because it all comes down to what we kind of judge the risk in each investment to be. And I think as we think across the portfolio, we're really trying to make the best risk-adjusted investments. And so as we -- as new opportunities come across, something could be a huge return, whether it be a royalty stream that comes around in the way that's from an independent company. But even the current may look great, we may find that very risky, and so we prefer to do a lower return term loan. And I think the same thing as we look at some of the Enteris projects. So our layer is for Enteris to be generating cash over time. And so we're -- I think going back to our earnings -- our announcement call and we talked about it, we're not looking to go and do a ton of R&D at Enteris from a case perspective, that's not what we're doing. But we are thinking about how do we advance and evolve from Enteris technology from 505(b)(2) product perspective and creative ways to finance those off balance sheet to be able to advance them really with the goal to create and building this portfolio of royalties. So we can look at all those things.

That makes perfect sense. I mean what I think is interesting or I'm glad you said that is because clearly, the way with the rapid amortization or kind of pulled forward amortization on Enteris, it really has to be valued in a separate manner. And so if it does need some with more spending, you certainly -- it will be great to find a way to do that using the kind of valuation in Enteris. After some more things come in and hopefully the Cara things pan out in the second half. If you do need more capital for stuff, it seems like raising it at that level, perhaps that would make a lot of sense given it's not really a book value type company unlike the finance business.

We are definitely thinking about that thing. Yes, I appreciate it, we are definitely thinking about those things. I appreciate it.

Well, I like the progress has been great. I like seeing it and I'll look forward to following along. Thanks.

Thanks, [ Matt ].

At this time, we have no further questions. I would now like to turn the conference back over to Winston Black for any closing remarks.

I appreciate that, operator. Thanks, everyone, for your time and attention and look forward to future updates as we continue to advance SWK. I'd also like to extend my sincere wishes, good health to all. Thank you.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.