Silver Spike Investment Corp. (NASDAQ:SSIC) Q2 2024 Earnings Call Transcript August 9, 2024
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. [Operator Instructions] 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: Good morning. This is Umesh Mahajan, CFO of Silver Spike Investment Corp. With me here 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 the second quarter ended June 30, 2024 were released yesterday and can be accessed from our website at ssic.silverspikecap.com. A replay of this call will also be available on Silver Spike’s website. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements related to financial guidance, may be deemed forward-looking statements under federal securities laws because these forward-looking statements involve known and unknown risks and uncertainties that are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.
We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Silver Spike assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, August 9, 2024. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading. So, good morning, again, and thank you all for joining. We released our results yesterday and there is a management presentation deck attached to the 8-K that was filed as well. Those who have joined us on this earnings webcast should see a link to the slides. We may refer to some of these slides during our presentation by their slide numbers just for reference.
I’ll cover the presentation slides and then turn it over to Scott Gordon for his thoughts and remarks. Before we get into the key financial highlights for the quarter ended June 30, 2024, a quick update on the loan portfolio acquisition that was announced in the first quarter. On February 20, 2024, the company announced that it entered into a definitive agreement to purchase from Chicago Atlantic Loan Portfolio, LLC a portfolio of loans in exchange for newly issued shares of the company’s common stock, subject to certain customary closing conditions. On April 15, the company filed a registration statement on Form N-14 in connection with the loan portfolio acquisition with the SEC. We filed pre-effective amendments to the Form N-14 on June 20 and July 31.
We are currently anticipating this transaction to close in early fourth quarter 2024. So, turning to the results and the presentation slides, turning to Page 3, financial highlights for the [first] (ph) quarter 2024. Gross investment income was $3.1 million for the quarter compared to $2.9 million in the same quarter last year. Expenses were approximately $1 million excluding expenses related to the loan portfolio acquisition. So, net investment income, excluding transaction expenses, of $2.1 million compared to $1.9 million last year. We have incurred transaction-related expenses of about $0.6 million in the quarter related to the work on the Form N-14 filings. Net investment income for the quarter of $1.5 million. This net investment income would have been higher if we were to exclude the impact of the transaction expenses.
Q&A Session
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Net assets at the end of the period of $84.3 million, down from last year due to the — primarily due to the payment of dividends and transaction expenses. On a per share basis, investment income, excluding transaction expenses, was $0.33 per share compared to $0.31 last year, net investment income of $0.25 per share, and our net asset value per share at June 30th is $13.56 per share. Also the Board declared a regular quarterly cash dividend of $0.25 per share, which is in line with the regular dividend paid over the past few quarters. This dividend will be payable on September 27 to stockholders of record on September 19. We will not be covering many of the subsequent slides in detail as most investors are already familiar with our story, happy to talk more about them in the Q&A session, but turning to Page 9, about our deal pipeline.
Our deal pipeline is robust and growing with the excitement and optimism about the rescheduling of cannabis, and the positive regulatory developments in a few key states. Many industry operators have started to revisit their growth strategies, both organic expansion as well as opportunistic M&A. Our active debt — deal pipeline is in excess of $550 million, and our conversations with cannabis operators on their fundraising plans have picked up over the past couple of months. Also, on February 20, 2024, the company announced that the Board unanimously approved an expansion of the company’s investment strategy to permit investments in companies outside of the cannabis and health and wellness sectors that would otherwise meet the company’s investment criteria.
That investment strategy change became effective on April 22. The deal pipeline on Page 9 does not reflect any non-cannabis prospects as yet. So, turning to Page 11, we show our portfolio summary as of August 8, 2024. As we can see at the top of the page, we have over $55 million — almost $57 million invested with an average yield to maturity of almost 18%. In this quarter ended June 30, 2024, we received a partial paydown from Company D, which reduced our total investment value, but this reduction was offset by a new investment in Company F, Workbox Holdings, a non-cannabis company, which offers flexible co-working office locations. We participated in the $13.3 million syndication for this borrower and made the investment in a package of term loans, preferred equity and warrants, that’s represented in Company F.
Subsequent to the end of the quarter, on July 16, we made another investment in Company G, Ascent Wellness, in its 12.75% senior secured notes due 2029. So, a few additional points we would like to reiterate about this portfolio. All of our positions in the portfolio are forced lien loans or secured bonds. None of our loans or bonds are in non-accrual status, and our gross portfolio yield of 18% compares favorably to the broader listed BDC universe. With that, let me pass it on to Scott Gordon for a few remarks.
Scott Gordon: 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 MSOs have successfully refinanced some of their maturity burdens.
Bigger picture, we do not anticipate any near-term meaning 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: Thank you very much, Scott. Victor, we are ready for Q&A.
Operator: Thank you. [Operator Instructions] I’m not showing any questions at this time. Umesh, I’ll turn it back to you for any closing remarks.
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Umesh Mahajan: All right. Well, thank you everyone for joining this call. We look forward to giving you further updates on the transaction and on the — and speaking with everyone on the next earnings call. Thank you very much.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
