Earnings Call Transcript - LIEN Q2 2024

Operator, Operator

Good day, and thank you for standing by. Welcome to the Silver Spike Investment Corp. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, Umesh Mahajan, Chief Financial Officer. Please go ahead.

Umesh Mahajan, CFO

Good morning. This is Umesh Mahajan, CFO of Silver Spike Investment Corp. Joining me today is Scott Gordon, CEO of Silver Spike Investment Corp. Welcome to Silver Spike's earnings conference call and live webcast for the second quarter ended June 30, 2024. Silver Spike's financial results for this quarter were released yesterday and can be found on our website at ssic.silverspikecap.com. A replay of this call will also be available on our website. Before we start, I want to remind everyone that some statements made during this call, including those related to financial guidance, may be considered forward-looking statements under federal securities laws. These statements involve known and unknown risks and uncertainties that can affect actual results. We encourage you to check our recent SEC filings for more information on these risk factors. Silver Spike does not have an obligation to update any forward-looking statements. Please note that the information discussed here is current as of today, August 9, 2024, and time-sensitive information may not be accurate if reviewed later. Thank you again for joining us. We released our results yesterday, and there is a management presentation deck attached to the 8-K that was filed as well. Those on the earnings webcast should see a link to these slides, and we may refer to some during our presentation. I'll cover the presentation slides before handing it over to Scott Gordon for his remarks. Now, let’s look at the key financial highlights for the quarter ended June 30, 2024. Gross investment income was $3.1 million for the quarter, up from $2.9 million in the same period last year. Expenses were about $1 million, excluding costs related to the loan portfolio acquisition. Therefore, net investment income, excluding these transaction expenses, was $2.1 million, compared to $1.9 million last year. We incurred about $0.6 million in transaction-related expenses this quarter for the Form N-14 filings. Thus, the net investment income for the quarter was $1.5 million, which would have been higher without the transaction-related expenses. At the end of the period, net assets were $84.3 million, a decrease from last year mainly due to dividend payments and transaction expenses. On a per-share basis, investment income, excluding transaction expenses, was $0.33 per share, compared to $0.31 last year, while net investment income was $0.25 per share. Our net asset value per share at June 30 is $13.56. Also, the Board declared a regular quarterly cash dividend of $0.25 per share, consistent with recent dividends. We won’t cover the subsequent slides in great detail as most investors are familiar with our story, but I’ll now refer to Page 9 to discuss our deal pipeline. It is strong and expanding, driven by optimism regarding cannabis rescheduling and positive regulatory changes in key states. Many operators are revising their growth strategies, both through organic expansion and opportunistic acquisitions. Our active deal pipeline currently exceeds $550 million, with recent upticks in conversations with operators about their fundraising plans. Additionally, on February 20, 2024, we announced that the Board unanimously approved an expansion of the company’s investment strategy to include investments outside the cannabis and health and wellness sectors, provided they meet our investment criteria, effective April 22. Note that the deal pipeline on Page 9 does not yet include any non-cannabis opportunities. Turning to Page 11, our portfolio summary as of August 8, 2024, shows we have invested over $55 million, with an average yield to maturity close to 18%. In this quarter, we had a partial paydown from Company D, but that was offset by a new investment in Company F, Workbox Holdings, which offers flexible co-working office spaces. We participated in a $13.3 million syndication for this borrower through a combination of term loans, preferred equity, and warrants. Following the quarter end, on July 16, we made another investment in Company G, Ascent Wellness, in its 12.75% senior secured notes due in 2029. To reiterate a few key points about our portfolio, all our investments are first lien loans or secured bonds, and none are in non-accrual status. Our gross portfolio yield of 18% is favorable compared to the broader listed BDC universe. Now, let me pass it over to Scott Gordon for a few remarks.

Scott Gordon, CEO

Thank you, Umesh. The overall macro environment for our cannabis-related lending business remains similar to last quarter. Much of the early excitement around rescheduling has since given way to some confusion and skepticism around timing, implementation, and process risks, particularly in light of the upcoming November election and potential for regime change. On the more positive side, state momentum continues to build. Ohio just recently launched its adult-use program, and all eyes are on Florida awaiting the outcome of its vote to allow for adult use within the state. Meanwhile, operating trends among the larger operators appear to be stable, if not slightly positive. Capital market activity has ticked up as a number of multi-state operators have successfully refinanced some of their maturity burdens. Bigger picture, we do not anticipate any near-term meaningful change in what has been a challenged and capital-scarce backdrop for the industry. This dynamic, while evolving, continues to afford us a strong position with respect to deal terms and pricing. While our core focus remains centered around opportunities within the broader cannabis ecosystem, we are excited to be building out our pipeline and activity outside of that sector. As Umesh referenced, we executed on our first non-cannabis loan this past quarter and look forward to an increasing number of interesting opportunities there going forward. With that, I'll pass it back to Umesh.

Umesh Mahajan, CFO

Thank you very much, Scott. Victor, we are ready for Q&A.

Operator, Operator

Thank you. I'm not showing any questions at this time. Umesh, I'll turn it back to you for any closing remarks.

Umesh Mahajan, CFO

Thank you everyone for joining this call. We look forward to providing you with further updates on the transaction and speaking with everyone on the next earnings call. Thank you very much.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.