SWK Holdings Corp

Previous wording

The table below provides an overview of our outstanding finance receivables transactions as of, and for the three months ended March 31, 2024*(in thousands, except rate, share and per share data).*

Current wording

The table below provides an overview of our outstanding finance receivables transactions as of, and for the three and six months ended June 30, 2024*(in thousands, except rate, share and per share data).*

Previous wording

Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31, 2024, compared to those discussed in our Annual Report.

Current wording

Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the six months ended June 30, 2024, compared to those discussed in our Annual Report.

Previous wording

Revenues increased to $11.8 million for the three months ended March 31, 2024 from $9.4 million for the three months ended March 31, 2023. The $2.4 million increase in revenue for the three months ended March 31, 2024 consisted of a $2.2 million increase in Finance Receivables segment revenue and a $0.2 million increase in Pharmaceutical Development segment revenue. The $2.2 million increase in Finance Receivables segment revenue was primarily due to a $4.1 million increase in interest and fees earned due to funding new and existing loans offset by $1.9 million decrease in interest, fees and royalties earned on finance receivables that were paid off in 2023.

Current wording

Revenues increased to $11.5 million for the three months ended June 30, 2024 from $9.5 million for the three months ended June 30, 2023. The $2.0 million increase in revenue for the three months ended June 30, 2024 consisted of a $1.4 million increase in Finance Receivables segment revenue and a $0.6 million increase in Pharmaceutical Development segment revenue. The $1.4 million increase in Finance Receivables segment revenue was primarily due an increase of $3.1 million in interest and fees earned due to funding new and existing loans offset by $1.7 million decrease in interest, fees and royalties earned on finance receivables that were paid off during the period.

Previous wording

Our allowance for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance for credit losses for loans and unfunded commitments to a level deemed appropriate by management. We recognized a net provision for credit losses of $5.3 million during the three months ended March 31, 2024 and no recognition for provision for credit loss during three months ended March 31, 2023, respectively. The $6.0 million impairment on the Trio loan was included within the provision for credit losses. See Note 3 to the unaudited condensed consolidated financial statements for further information on the allowance for credit losses.

Current wording

Our provision for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance for credit losses for loans and unfunded commitments to a level deemed appropriate by management. We recognized a net provision for credit losses of $4.1 million during the three months ended June 30, 2024 and $0.7 million benefit during three months ended June 30, 2023, respectively. The $2.1 million impairment on the Trio loan and $2.2 million impairment on the Exeevo loan were both included within the provision for credit losses. See Note 3 to the unaudited condensed consolidated financial statements for further information on the allowance for credit losses.

Previous wording

Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs. Interest expense increased to $1.3 million for the three months ended March 31, 2024 from $0.2 million for the three months ended March 31, 2023. The $1.1 million increase in interest expense was mainly due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023, and the establishment of the Credit Agreement as of March 31, 2023. See Note 6 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.

Current wording

Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs. Interest expense increased to $1.1 million for the three months ended June 30, 2024 from $0.4 million for the three months ended June 30, 2023. The $0.7 million increase in interest expense was mainly due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023, and the establishment of the Credit Agreement as of June 30, 2023. See Note 6 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.*** ***

Previous wording

Pharmaceutical manufacturing, research and development expense decreased from $0.7 million for the three months ended March 31, 2023 to $0.5 million for the three months ended March 31, 2024. The $0.2 million decrease was primarily due to reduction in research and development and clinical trial expenditures during the period.

Current wording

Pharmaceutical manufacturing, research and development expense decreased from $1.5 million for the three months ended June 30, 2023 to $0.5 million for the three months ended June 30, 2024. The $1.0 million decrease was primarily due to reduction in research and development and clinical trial related to cancelled projects.

Previous wording

The $0.1 million decrease in depreciation and amortization expense for the three months ended March 31, 2024 primarily consists of a decrease in amortization expense related to the intangible assets of Enteris. Amortization expense is aligned with the expected future cash flows of the intangible assets.

Current wording

The $0.2 million decrease in depreciation and amortization expense for the three months ended June 30, 2024 primarily consists of a decrease in amortization expense related to no longer amortizing intangible assets related to the Cara license. Amortization expense is aligned with the expected future cash flows of the intangible assets.

Previous wording

General and administrative expenses consist primarily of compensation; stock-based compensation and related costs for management, staff and Board; legal and audit expenses; and corporate governance expenses. General and administrative expenses increased to $2.7 million for the three months ended March 31, 2024 from $2.5 million for the three months ended March 31, 2023. The $0.2 million increase included a $0.1 million decrease to salaries & wages and a $0.2 million increase in professional fees.

Current wording

General and administrative expenses consist primarily of compensation; stock-based compensation and related costs for management, staff and Board; legal and audit expenses; and corporate governance expenses. General and administrative expenses decreased to $2.9 million for the three months ended June 30, 2024 from $3.0 million for the three months ended June 30, 2023 resulting in an immaterial change in total activity between the periods.

Previous wording

During the three months ended March 31, 2024 we recognized $0.2 million of income tax expense, while for the three months ended March 31, 2023 we recognized income tax benefit of $0.1 million. The change in income tax expense (benefit) is primarily attributed to changes in pre-tax net income, the Company's effective tax rate, which was 20.9% and 10.1% as of March 31, 2024 and 2023, respectively, and a release of valuation allowance on deferred tax assets of $0.6 million during the three months ended March 31, 2023.

Current wording

During the three months ended June 30, 2024 we recognized $1.0 million of income tax expense, while for the three months ended June 30, 2023 we recognized income tax of $1.5 million. The change in income tax expense is primarily attributed to changes in pre-tax net income, and the Company’s effective tax rate, which was 20.9% and 10.1% as of June 30, 2024 and 2023.

Previous wording

As of March 31, 2024, we had $5.5 million in cash and cash equivalents, compared to $4.5 million in cash and cash equivalents as of December 31, 2023. The primary driver of the $1.0 million increase in our cash balance was $19.0 million of interest, fees, principal and royalty payments received on our finance receivables. The increase in cash and cash equivalents was partially offset by $0.4 million of investment funding, net of deferred fees and origination expenses; $0.8 million holdback repayment; a net credit facility payment of $12.4 million; a payroll and benefits expense of $2.4 million; $2.3 million of accounts payable; and $1.0 million to repurchase shares of the Company's common stock on the open market, pursuant to the Company’s stock repurchase program.

Current wording

As of June 30, 2024, we had $5.5 million in cash and cash equivalents and restricted cash, compared to $5.2 million as of December 31, 2023. The primary driver of the $0.3 million increase in our cash balance was $29 million of interest, fees, principal and royalty payments received on our finance receivables. The increase in cash and cash equivalents was partially offset by $8.2 million of investment funding, net of deferred fees and origination expenses; $0.8 million holdback repayment; a net credit facility payment of $12.4 million; a payroll and benefits expense of $2.4 million; $3.2 million of accounts payable; and $1.9 million to repurchase shares of the Company’s common stock on the open market, pursuant to the Company’s stock repurchase program.

Previous wording

We entered into a $45.0 million revolving credit facility in June 2023 with First Horizon Bank. The Credit Agreement provides for one or more incremental increases not to exceed $80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the Commitment Termination Date. On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million. As of March 31, 2024, $0.0 million was outstanding under the new Credit Agreement, and $55.0 millionwas available for borrowing.

Current wording

We entered into a $45.0 million revolving credit facility in June 2023 with First Horizon Bank. The Credit Agreement provides for one or more incremental increases not to exceed $80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the Commitment Termination Date. On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million. As of June 30, 2024, there was no outstanding amount under the new Credit Agreement, and $55.0 million was available for borrowing. The $60.0 million Credit Agreement contains a $5.0 million liquidity covenant, bringing the total amount available for borrowing to $55.0 million.

Previous wording

On October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Notes. On October 27, 2023, the underwriters exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes. The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023. The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million.

Current wording

On October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Notes. On October 27, 2023, the underwriters exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes. The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023. The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million. As of the date of this filing the Company is in process of amending the Credit Agreement whereby the covenant for net charge-off percentage will be revised upwards, and will include an increase to the Company’s share buyback basket. The amendment will be retroactively applicable to the quarter ended June 30, 2024. See Note 5 for more information.

Previous wording

As of March 31, 2024, our finance receivables portfolio contains $261.3 million of net finance receivables and $0.4 million of marketable investments. We expect these assets to generate positive cash flows in 2024. We continuously monitor the short and long-term financial position of our finance receivables portfolio. In addition, the majority of our finance receivables portfolio are debt instruments that carry floating interest rates. Changes in interest rates, including the levels of the underlying reference rates may affect the interest income for debt instruments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Current wording

As of June 30, 2024, our finance receivables portfolio contains $265.5 million of net finance receivables and $731 thousand of marketable investments. We expect these assets to generate positive cash flows in 2024. We continuously monitor the short and long-term financial position of our finance receivables portfolio. In addition, the majority of our finance receivables portfolio are debt instruments that carry floating interest rates. Changes in interest rates, including the levels of the underlying reference rates may affect the interest income for debt instruments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Previous wording

As of March 31, 2024, we had $5 million of unfunded commitments. Please refer to Item 1., Financial Statements, Note 6 of the notes to the unaudited condensed consolidated financial statements for further information regarding the Company’s commitments and contingencies.

Current wording

As of June 30, 2024, we had $5.0 million in unfunded commitments. Please refer to Item 1., Financial Statements, Note 6 of the notes to the unaudited condensed consolidated financial statements for further information regarding the Company’s commitments and contingencies.