Silver Spike Investment Corp. (NASDAQ:SSIC) Q4 2023 Earnings Call Transcript

Silver Spike Investment Corp. (NASDAQ:SSIC) Q4 2023 Earnings Call Transcript March 28, 2024

Silver Spike Investment Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Silver Spike Investment Corp. Fiscal Year End 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your first speaker today, Umesh Mahajan. Please go ahead, sir.

Umesh Mahajan: Thank you. Thank you, Sharon [ph]. Good morning. This is Umesh Mahajan, Chief Financial Officer 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 fiscal year end 2023. Silver Spike’s financial results for the fiscal year ended December 31, 2023 were released yesterday, and can be accessed from our website at ssic.silverspikecap.com. A replay of this call will also be available on our website later. 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, March 28, 2024. Therefore, you’re advised that time sensitive information may no longer be accurate at the time of any replay or transcript reading. With that said, good morning again, and thank you all for joining today. We released our earnings yesterday and there is a management presentation deck attached to the 8-K that was filed yesterday evening.

A financial planner carefully scrutinizing company’s investment portfolio.

Those who have joined us on this earnings call webcast should also see a link to the slides. We may refer to the slides by numbers for your reference as we walk through those pages. And I will cover the presentation slides to start and then turn it over to Scott Gordon for his thoughts and remarks. Turning to Page 3 of our presentation; financial highlights for the quarter ended December 31, 2023. The very first column shows the results for the quarter; gross investment income of $3.6 million compared to $2.9 million in the previous quarter. Expenses of approximately $1.2 million excluding expenses related to the loan portfolio acquisition. A transaction that we have previously announced but not has — but has not closed yet; Scott will discuss the transaction in more detail later in this presentation.

We then have the loan portfolio acquisition expenses of $0.7 million, essentially legal expenses for the transaction incurred so far. We have net investment income of $1.7 million for the quarter. Again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses. Net investment income per share of $0.28 this quarter, net assets of $85.6 million at the end of the period, down slightly from last quarter due to the payment of dividend. And our net asset value per share at December 31 is $13.77 [ph]. There were no new investments this quarter; we’ll discuss our origination efforts and our portfolio in more detail in subsequent slides. Also, our Board declared a regular quarterly dividend of $0.25 per share; this dividend will be payable on March 28, today, to shareholders on record as of March 28 [ph].

On Page 4, we show the financial highlights for the full year of 2023. Please note that this was the first full year of operations for us. The comparison for the previous year is for nine months, from April 1, 2022 till December 31, 2022. So for the fiscal year ended 2023, the first column goes investment income of $11.9 million, total expenses of $5.3 million which includes the $0.7 million expenses related to the loan portfolio acquisition, net investment income of $6.6 million, again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses, net investment income per share of $1.07, and we have paid a poor [ph] dividend of $1.33 during the year ended 2023. We will not be covering the next few slides in the slide deck in detail as most of the investors are already familiar with our story.

But turning to Page 10, I would like to talk a little bit about the origination and the deal pipeline. Our deal pipeline remains very strong. In general, the last quarter of 2023 was a slow period for loan transactions in the cannabis sector as a whole. To a large extent, there was an expectation among the cannabis operators that some progress on the rescheduling of cannabis is imminent, and that these borrowers should wait. At this point, many of those potential borrowers have figured it may be best to not necessarily wait for an update on the rescheduling front and have begun to re-engage with lenders like us. So, we expect activity to pick up — in fact, the discussions have already picked up. And we have an active pipeline of over $420 million, we — we have used the slow period in the industry productively by working on the loan portfolio acquisition transaction.

So turning to Page 12, we share our portfolio summary as of December 31. Companies A and B are Shrine and PharmaCann, which were investments we made last year in the summer. Company C is purely 8% secured bonds that we had purchased at a significant discount to the par value last year. Company D is one of our large positions in Verano [ph], it’s a first lien term loan transaction done in the last quarter of last year. And company E represents DreamFields Brands or Jeeter. One of our portfolio companies MayMaid [ph] prepaid the loan along with a prepayment premium in the quarter ending December 31, 2023. So overall, if you look at the top of the page, our total investment value is a little over $54 million, average yield to maturity across all the zones is 18%.

And a few additional points that we’d like to highlight about this portfolio and remind the investors to consider when they compare SSIC with other listed BDCs; first, all of our positions are firstly in bonds — are firstly in loans or secured bonds. Second, none of our loans or bonds are in non-accrual status. Third, all of — sorry, actually over 90% of our portfolio is in floating rate notes. And our gross portfolio yield of 18% compares quite favorably to the broader listed BDC universe. And we believe each of these portfolio companies is extremely well positioned in the industry for the longer term. With that, let me pass it on to Scott for his remarks.

Scott Gordon: 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 it’s 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 21 — January 1, 2024 as the following 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, subjected 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.

Umesh Mahajan: Thank you, Scott. That’s all we actually had in our prepared remarks. We are ready for the Q&A event.

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Q&A Session

Operator: [Operator Instructions] We will now go to our first question. One moment, please. And your first question comes from Michael LaBrie [ph] from Piper Sandler. Please go ahead.

Unidentified Analyst: 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?

Umesh Mahajan: So, let me start and then I’ll pass it on to Scott. Yes, definitely. I think the — 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, the consumers feeling good, the 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 launched their recreational use this year. Some of the states were a little disappointing in terms of the way they — the market has grown compared to expectations; like Jersey and New York.

But many other states have done fabulously well; Missouri is a great example of it, 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, about something that we are hopefully waiting to hear on Florida today. So there are a lot of these 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 coming up. And so overall, when we look at the landscape, the operators who have successfully executed their strategy are — have definitely feeling better and are re-engaging with us on all their growth plans, and we are here to support them with all of their growth plans and the capital needs.

Unidentified Analyst: Okay, that’s great. Thanks so much.

Operator: Thank you. We will now go to the next question. One moment, please. And your next question comes from the line of William Carter from Stifel. Please go ahead.

William Carter: 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.

Scott Gordon: Sure. I’ll start with that and then pass it over to Umesh. Thanks, Andrew [ph]. So, the transaction is obviously subject to SEC review. We’ll be filing an N-14 [ph] shortly for the SEC to review and pine 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, Andrew [ph], is that this transaction is sound, it makes a lot of sense for our shareholders and we’ll be able to pass through the SEC review process. So, I think premature at this point for us to really talk about a plan B; our focus is on Plan A for the moment.

William Carter: Thanks. I’ll pass it on.

Operator: Thank you. There are currently no further questions. I will hand the call back to you.

Umesh Mahajan: Thank you, Sharon [ph]. 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.

Operator: Thank you. This concludes today’s conference call. Thanks for participating. You may now disconnect.