Transcript
Thank you, Sharon. Good morning. This is Umesh Mahajan, Chief Financial Officer of Silver Spike Investment Corp. Joining me is Scott Gordon, CEO of Silver Spike Investment Corp. Welcome to Silver Spike’s earnings conference call and live webcast for the fiscal year ending 2023. We released our financial results for the fiscal year ended December 31, 2023, yesterday, and they can be accessed on our website. A replay of this call will also be available on our website later. I want to remind everyone that some statements made during this call may be considered forward-looking statements under Federal Securities Laws. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially. Please refer to our recent SEC filings for information on these risk factors. Silver Spike does not take on any obligation to update any forward-looking statements. Note that the information on this call reflects our situation as of today, March 28, 2024, and may change over time. Thank you for joining us. We released our earnings yesterday and there is a management presentation deck attached to an 8-K filed yesterday evening. If you're following along with the webcast, you should see a link to the slides. We may reference the slides by numbers. I'll start with the presentation slides and then hand it over to Scott Gordon for his thoughts. Looking at Page 3 of our presentation; for the quarter ended December 31, 2023, we generated gross investment income of $3.6 million compared to $2.9 million in the previous quarter. Excluding loan portfolio acquisition expenses, our total expenses were approximately $1.2 million. We will discuss these acquisition expenses, which amount to $0.7 million, later in the presentation. Our net investment income for the quarter was $1.7 million, which would have been higher without the loan acquisition expenses. The net investment income per share was $0.28 this quarter, with net assets at $85.6 million at the end of the period, slightly down from last quarter due to dividend payments. Our net asset value per share at December 31 was $13.77. There were no new investments this quarter; we’ll provide more details about our origination efforts and portfolio in upcoming slides. Additionally, our Board declared a regular quarterly dividend of $0.25 per share, payable on March 28 to shareholders on record as of today. On Page 4, we present the financial highlights for the full year 2023. This was our first full year of operations. The prior year comparison is for the nine months from April 1, 2022, to December 31, 2022. For the fiscal year ended 2023, investment income totaled $11.9 million, with total expenses at $5.3 million, including $0.7 million relating to the loan portfolio acquisition. Our net investment income for the year was $6.6 million, which would also have been higher without the loan acquisition expenses. The net investment income per share was $1.07, and we distributed a total dividend of $1.33 during 2023. We will not discuss the next few slides in detail as most investors are already familiar with our narrative. Moving to Page 10, I want to highlight our origination and deal pipeline, which remains strong. The last quarter of 2023 was generally slow for loan transactions in the cannabis sector as operators anticipated progress on the rescheduling of cannabis, leading them to delay engagement. However, many of these potential borrowers have recently decided to reconnect with lenders like us, so we expect activity to increase — indeed, discussions are already ramping up. We currently have an active pipeline exceeding $420 million; we've utilized the slower period productively by focusing on the loan portfolio acquisition transaction. Turning to Page 12, we provide our portfolio summary as of December 31. Companies A and B are Shrine and PharmaCann, investments made last summer. Company C consists of secured bonds purchased last year at a significant discount. Company D is a major position in Verano, which involved a first lien term loan transaction completed in the last quarter of the previous year. Company E represents DreamFields Brands or Jeeter. One of our portfolio companies, MayMaid, prepaid its loan along with a premium in the quarter ending December 31, 2023. Overall, our total investment value is just over $54 million, with an average yield to maturity across all loans of 18%. Important points to consider about our portfolio when comparing SSIC with other listed BDCs include that all of our positions are primarily in loans or secured bonds; none are in non-accrual status; over 90% of our portfolio consists of floating rate notes; and our 18% gross portfolio yield compares favorably to the broader BDC universe. We believe each portfolio company is well positioned for long-term success. Now, I’ll hand it over to Scott for his remarks.
Thank you, Umesh. Good morning, everybody. Just wanted to take a few moments to discuss the proposed loan portfolio acquisition. SSIC announced on February 20 of this year that it entered into a definitive agreement to purchase from Chicago Atlantic Loan Portfolio, portfolio of loans in exchange for newly issued shares of SSIC's common stock. This acquisition is expected to provide various benefits to SSIC and its stockholders, including increased scale and liquidity, enhanced portfolio diversification, improved access to debt and equity capital markets, and accretion to net investment income. Pro forma information following the closing of the loan portfolio acquisition based on SSIC data as of December 31, 2023 and the capital loan portfolio data as of January 1, 2024 is as follows: pro forma net assets of approximately $213 million, including approximately $187 million of portfolio investments across 27 portfolio companies, and approximately $25 million of cash. Approximately 19.1% pro forma combined gross weighted yield to maturity of the loan portfolio. SSIC's present officers will continue to be part of the SSIC management team following the loan portfolio acquisition and anticipated closing is mid-2024, subject to satisfaction of customary closing conditions. In February, we also announced that our Board of Directors unanimously approved an expansion of our investment strategy to permit investments in companies outside of the cannabis and health and wellness sectors that otherwise meet our investment criteria. The investment strategy change is expected to become effective on or about April 22 of this year. With that, I'll pass it back to Umesh.
Thank you, Scott. That's all we actually had in our prepared remarks. We are ready for the Q&A event.
Good morning. Thank you. Just some of your comments in the release about some improving market conditions and at least some certain states; could you give a little bit more color on what you're seeing and how that looks?
So, let me start and then I'll pass it on to Scott. Yes, definitely. I think we can talk about the stage but overall if we step back and look at the market as a whole. The first thing that we have observed here is that the industry is poised for growth. Overall, the inflation concerns are abating, the economy seems to be resilient, consumers are feeling good, sentiment is improving, and the demand for cannabis as a product continues to remain strong; so that's the backdrop. And if you look at the development of various states, we have seen a lot of improvement or positive developments across multiple states. We saw several states launch their recreational use this year. Some of the states were a little disappointing in terms of the way the market has grown compared to expectations; like New Jersey and New York. But many other states have done fabulously well; Missouri is a great example of it, as it has really exceeded expectations in every way. We have seen a lot of movement in terms of updates and expected adult use legislation getting passed. We're very excited about Pennsylvania, about Ohio, and we are hopefully waiting to hear on Florida today. So there are a lot of developments across these various states. If you look at the key markets of California and Michigan, prices have stabilized. Yes, there is a lot of change happening within the California retail market, but again, these are slow but improving trends in those markets, and there are new states that are emerging. Overall, when we look at the landscape, the operators who have successfully executed their strategy are definitely feeling better and are re-engaging with us on all their growth plans, and we are here to support them with their growth plans and capital needs.
Okay, that's great. Thanks so much.
Hey, thanks. Good morning. I wanted to ask about this transaction. I mean, do you see any material risk to this not closing, not getting approval; potentially even taking longer than expected? And in that case, I mean, what options would you consider because I think with your acquisition announcement, I think you suggested the current scale is not tenable. So just kind of understand plan B if there is one; no matter how little probability there is.
Sure. I'll start with that and then pass it over to Umesh. Thanks. So, the transaction is obviously subject to SEC review. We'll be filing an N-14 shortly for the SEC to review and comment upon covering all aspects of the transaction. Obviously, our hope and expectation is that we pass the review process with the SEC. Unclear sort of how long that will be; we've estimated and stated that we're anticipating to close the transaction sometime this summer. In terms of a plan B, obviously, we acknowledge that a BDC of our size is sub-optimal. But our hope and expectation is that this transaction is sound, it makes a lot of sense for our shareholders and we will be able to pass through the SEC review process. I think it's premature at this point for us to really talk about a plan B; our focus is on Plan A for the moment.
Thanks. I'll pass it on.
Thank you, Sharon. Thank you everyone for joining. If you have any questions, please reach out to us or our Investor Relations Department. We’d be happy to answer your questions. Thank you again for joining the call today. Thank you.
Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.