Silver Spike Investment Corp (SSIC) 2023 Q3 法說會逐字稿

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 third quarter of 2023. Silver Spike's financial results for the quarter ended September 30, 2023 were released yesterday and can be access from our website at ssic.silverspikecap.com. A replay of the call will also be available on Silver Spike's website.

Before we begin, I'd 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 this 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 information reported on this call speaks only as of today, November 10, 2023. Therefore you're advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading.

Alright. So good morning again. And thank you all for joining. The release are results yesterday. And there's a management presentation deck attached to the 8-K that was filed. Those who are joining us today on this earnings webcast should also be able to see it live.

We made an effort to do this slide by numbers. It's just for reference as we go to those pages. I'll cover the presentation slides and then turn it over to Scott Gordon for his thoughts towards the end of the presentation.

So if you please turn to Page 3 of the presentation. Shows the financial highlights for the third quarter 2023, Gross investment income of $2.9 million. Expenses of $1.3 million. Net investment income of $1.6 million. Net investment income per share of $0.26 this quarter. Net assets at the end of period of $87.4 million was down from last quarter due to the payment of dividends that we can paid. Our net asset value per share is at $14.06.

There were no new investments this quarter. We'll discuss our origination efforts and portfolio in more detail in subsequent slides. We are also pleased to announce that our Board has approved a cash dividend of $0.70 per share consisting of a regular quarterly dividend of $0.25 per share was at $0.23 per share last quarter. And a special dividend of $0.45 versus $0.40, say last quarter. These dividends will be payable on December 29 to stockholders of record on December 20. We'll be going to the next few pages as quickly as most of our investors are already familiar with our story.

On Page 4, Silver Spike Investment Corp, the BDC is managed by Silver Spike Capital. A SEC registered investment advisor with a seasoned team that has decades of investing experience and extensive network in the cannabis industry. On Page 5, it presents the experience profile of our management team.

Page 6 presents the competitive advantages and differentiation that a BDC offers vis-a-vis other types of investment vehicles primarily REITs, which are our main competitors in the cannabis lending space. SSIC can lend against cash flows as well as real estate. And unlike REITs, we are not required to have at least 75% for the assets investment real estate, which allows us for more flexible lending strategies that the industry really needs and we'll need going forward.

On Page 7, we talk about the market opportunity. We believe we are in the early innings of a multi-year secular growth story for the cannabis industry. With a really compelling opportunity for lenders because of a general lack of institutional capital for this industry.

On Page 8, visual or detail underwriting process that we go through for every investment that we make with our capital.

On Page 9 which are sourcing and origination effort. Our active pipeline remains very robust. There was a temporary lull and deal activity towards the end of the summer. But that has picked up again in October. We have an active deal pipeline of $448 million. And we are very busy working through the existing deals and feel very good about the opportunities that we are currently pursuing.

On Page 10 shows the diversification embedded in our portfolio. The bar chart on the left shows the number of states that each of our portfolio companies operate in. For the cannabis industry and this is important since each state has its own set of regulations and unique competitive dynamics. Each company in our portfolio is diversified. And at an overall portfolio level, we are even more diversified across various states' dictions. The pie chart on the company strategy in the center of this page shows that we have a healthy mix of companies across those that have brand does as primary focus versus MSOs that are focused on setting up business infrastructure across multiple states. So we feel good about the overall risk diversification embedded in our portfolio.

Slide 10 shows our portfolio summary as of September 30. Company A is [Shrine], which the owner of brands Steezy. Company B is [PharmaCann]. These two investments were made last year in the summer. Company C shows [Cure leaves]. 8% secured bonds due 2026. They were purchased at a significant discount to its par value.

Our last three investments were our floating rate loans and the remainder -- with prime as a base rate. Company D is one of our large investments in Verano first-lien term loan transaction that was done last October. Company E represents our investment in [Merriman]. Investment made earlier this year. And Company F represents Dreamfields Brands owner of the brand Jeeter. One of the most recognized cannabis brand especially in the pre-hold category.

This quarter, we facilitated an expansion of the credit facility for Jeeter, although our position size remains the same. So overall if I look at the top of the page, our total investment value is about $57 million with an average yield to maturity on the loans of 18.2%.

A few additional points we like to emphasize when we look at this portfolio and then we are comparing this with other BDCs out there, all of our positions are first-lien loans or secured bonds. None of our loans or bonds are in a non-accrual status or 90% of our portfolio is in floating rate securities. And our gross portfolio yield of over 18% compares quite favorably to the broader listed BDC universe. So the portfolio compares favorably. And we also believe that each of our portfolio companies is actually very well positioned in the industry for the long term.

So let me let me conclude by reminding the investors that a quarterly dividend of $0.25 and a special dividend of $0.45 will be paid to the stockholders of record on December 20, 2023.

So with that, let me pass it onto Scott Gordon for a few remarks.

Thanks, Umesh. Just briefly with respect to the broader market conditions over the course of the quarter were decidedly mixed news on the regulatory front with respect to a potential rescheduling of cannabis. Earlier in the quarter led to a widespread enthusiasm among industry participants. Publicly-traded cannabis names rallied strongly in anticipation of finally long-awaited and meaningful regulatory reform taking shape.

Generally, operators in the space for led to believe that this would result in an imminent increase in capital flow coming into the sector. As such, they pause many of their financing initiatives, which resulted in a low capital market activity across the board that Umesh referred to. We believe this is a temporary thing and are already beginning to see meaningful pickup in our deal sourcing efforts.

Meanwhile, macro trends and sector remain intact. Growth in most markets is broadly in-line with forecasts. And many of the price and margin compression pressure as we have seen over the last several years seem to be highly abating.

New state markets continue to come online. Most notably, the electoral decision this week in Ohio to implement adult use. Consolidation among operators continues to be a theme in smaller. And less efficient companies are either shuttering or merging to create better economies of scale in operating efficiencies. This is particularly prevalent in California. A market which is struggle of late with its own idiosyncratic issues and challenges.

Overall though, we remain excited that the opportunity set for us. It's at SSIC as attractive as capital in the industry remains a scarce commodity. For anything else, the ability to continue executing on structuring solid loans with very favorable lender terms in credit metrics.

With that, I'll turn it back to Umesh.

Thanks Scott. So that's what -- that's all we have. And in terms of our formal presentation we'll be happy to answer any questions you have. Operator

(Operator Instructions) Michael Lavery, Piper Sandler.

Thank you. Good morning.

Hey. Good morning, Michael. How are you doing?

Yeah. Good. I want to follow-up on your commentary about the price compression and the market conditions at least stabilizing. And just I guess maybe a couple of things. How broadly are you seeing that?

And would it be right to think that in some of those market conditions improve especially -- or even just stabilize especially around pricing. It would seem to make operators more willing and inclined to look for capital and financing. Would that be the right way to think about it, and is that some what you're saying?

Yes. Thank you. That's a good question, Michael. Yes. As we have experienced over the last year, there was in many of the competitive markets especially the Western states.There was clearly a significant downward drift in the wholesale prices that was compression in the retail margins to some extent as well.

And in that backdrop, it was difficult for the operators to actually think about and execute their growth strategies. They were hunkering down. They were looking inside their hood. They were trying to fix some of their operations and get to a cost structure where they can compete better and prevail with the competitive dynamics.

Now that we have seen that a number of licenses have not been renewed for cultivation many of those states. Now that we have seen that the cultivation and the wholesale markets have improved as a result in many of those market. And you started seeing some of the uptick in the wholesale prices. The operators are feeling more comfortable with revisiting some of their growth plans.

And those growth plans could be twofold. It could be just organic growth. Revisiting some of their add-ons to that either the cultivation facilities or adding a couple more dispensaries or it could also be M&A. And there is definitely a lot of focus on consolidation and M&A. But they are now feeling more comfortable pursuing those strategies. And whichever strategies they pursue, capital is going to be a good and an important component of it. And we want to participate with those good operators in executing those strategies.

And of course as lenders, we have to, as part of our underwriting process, focus on the companies that are well positioned given all the dynamics. We also want to be very supportive of whatever strategy their limits are. Either case, they will need capital. And the what -- like to participate in those strategies for the right operators.

Okay. Great. Thanks so much.

Thank you. There are no further questions. I'd like to turn the call back over to Umesh Mahajan for closing remarks.

Thank you. If there are any additional questions that investors may have, please reach out to us -- our Investor Relations. Otherwise, thank you very much for participating in this call. We look forward to speaking with you again next quarter. Thank you very much.

Thank you for your participation. This does conclude the program. And you may now disconnect. Everyone, have a great day.