Q1 2023 Silver Spike Investment Corp Earnings Call

Speaker 1: You.

Speaker 2: participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised that today's conference is being recorded.

Speaker 2: I would now like to hand the conference over to your speaker today, Yumes Mahajan, Chief Financial Officer. Please begin, sir. Thank you, Ms. Mahajan. I would now like to hand the conference over to your speaker today, Yumes Mahajan, Chief Financial Officer.

Speaker 3: Thank you Norma. Good morning. This is Umesh Mohajan, CFO of SilverSpike Investment Corp. With me here today is Scott Gordon, CEO of SilverSpike Investment Corp. Welcome to SilverSpike's earnings conference call and live webcast for the first quarter of 2023.

Speaker 3: SilverSpike's financial results for the quarter end at March 31, 2023, and can be accessed from our website at ssic.silverspikecap.com. A replay of this call will also be available on our website.

Speaker 3: 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 the federal securities laws because these forward-looking statements involve known and unknown risks and uncertainties.

Speaker 3: There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Speaker 3: We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Service Spike assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only to the

Speaker 3: as of today, May 12, 2023. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading.

Speaker 3: So with that said, good morning again and thank you all for joining. We released our earnings results yesterday and there's a management presentation deck attached to the earnings release as well. Those who have joined us on this earnings webcast should be able to access this presentation live else you'll find the link to the deck in the 8k also that was filed.

Speaker 3: We may refer to the slides by numbers just for your reference as we go through the presentation.

Speaker 3: So turning to page three of the presentation, financial highlights for the first quarter 2023. As you can see, the first column, we had a gross investment income of $2.5 million, expenses of approximately $1.1 million.

Speaker 3: Gives us net investment income of 1.4 million.

Speaker 3: net investment income per share of 22 cents for this quarter, net assets at the end of the period of 88.8 million versus 86.5 million at the end of last quarter and the net asset value per share at the end of the period was $14.29 versus

Speaker 3: $13.91 at the end of last quarter.

Speaker 3: The increase in gross investment income reflects the ramp-up in our portfolio. We made one new investment during this quarter and the gross investment income reflects the interest we have earned on that investment for this quarter. We'll discuss the portfolio and the pipeline in more detail in subsequent slides. But before I do that, I'd like to just briefly mention that the growth in the portfolio is almost implspace the market to die-back.

Speaker 3: To expand a little bit more on the Silver Spike story and the market opportunity, I'll turn it over to Scott Gordon, RCO.

Speaker 4: Thank you, Umesh. Good morning, everyone. So just to remind folks, we are a BDC focused on lending to the cannabis sector predominantly in the U.S. market. We believe that lending to cannabis companies is a compelling investment opportunity with attractive yields and limited competition.

Speaker 4: We also feel that lending to cannabis requires intense focus and specialization given the myriad of regulatory, legal, and operating complexities that exist in the space.

Speaker 4: At SilverSpike, we have a team of experienced professionals with extensive backgrounds in both credit and cannabis to execute on our mandate.

Speaker 4: We continue to benefit from an excellent vintage of lending to the cannabis sector currently.

Speaker 4: Previous vintages of cannabis loans did not afford the same opportunity that we are seeing today with respect to pricing, terms, and overall structure. We remain focused on finding the very best operators in the industry in every jurisdiction and provide them with growth capital.

Speaker 4: We structure our investments appropriately and carefully.

Speaker 4: and do not take or rely on any equity sweeteners to obtain our returns. Our loans are typically made to borrowers with very low leverage.

Speaker 4: And lastly, our objective is to create a diversified portfolio of investments offering high quality risk and an attractive yield to our shareholders.

Speaker 4: With that, I will pass it back to Amesh. Thank you. Thanks, Clark. So I'm going to page.

Speaker 3: page 8, which talks about sourcing and origination. On the origination front, we do have at SilverSpike an extensive network of contacts within the industry which has been built over the years through our partners operating experience in the industry.

Speaker 3: And as a result, we've been able to originate and lead deals that are much larger than what we would otherwise be able to do based on the size of our PTC. And we are very pleased with the pipeline of opportunities in front of us. Until March 31st, we have seen over $7.3 billion of transactions.

Speaker 3: And as of March 31, we were actively looking at a pipeline of over 670 million of transactions where we were engaged with these potential borrowers. So we feel good about the opportunities set.

Speaker 3: Moving to the next page, SSIC portfolio summary. It shows our portfolio summary as of May 5th. On this list, you can see companies A and B are Shrine and PharmaCan, which are investments we made earlier during 2022. Company C shows AYRs, 12.5% secured bonds.

Speaker 3: And company D shows Q reliefs, 8% secured bonds. These were investments made at a significant discount in their par values.

Speaker 3: Our last three investments on this page are floating-rate loans and with prime currently at 8.25, these investments offer an attractive return at this point. Company E is offered large investments in Verano's post-linked term loan.

Speaker 3: a transaction that was completed in October last year. In the first quarter of this year, we made an investment in Marrimack, Shola's company, F. We talked about this investment in our last earnings call. It's a three-year, four-slean, secure term loan with prime plus

Speaker 3: 5.75% cash and 1.4% pick.

Speaker 3: Subsequent to the end of the quarter, so in last week, in first week of May of this year, we made an additional investment in Dreamfield's brands, so is company G. The company's brand Jeter is one of the most recognized cannabis brands.

Speaker 3: especially in the pre-roll cannabis product category, we believe this loan also offers an excellent and attractive yield on our investment. So overall, if you look at the top of the page, we have almost 60 million invested, within weighted average yield to maturity of...

Speaker 3: almost 17.7%. This is all, as Scott mentioned, it's all fixed income based. It does not include, we do not take any equity sweeteners on our transactions, neither does it include any upside that can potentially come through prepayments. Purely fixed income return.

Speaker 3: We believe that our portfolio has companies that are very well positioned in the industry for the longer term and at the same time offer a really attractive yield on our investment.

Speaker 3: We've been very busy working on a number of very interesting opportunities. We're excited about the pipeline that we're currently working on and we hope to have more updates as we continue to deploy our capital and build a high-quality portfolio.

Speaker 3: I also wanted to briefly address the important topic of dividends.

Speaker 3: As we have mentioned in our previous calls, our goal is to announce a regular recurring dividend when we are nearly fully invested.

Speaker 3: Now that we are approaching 70% deployment, evaluating a dividend policy has become a key priority for management and the board.

Speaker 3: Also, I would highlight that we are quite a distributed at least 90% of the income on doing the tax year.

Speaker 3: which ended on March 34, 2023 for us. So we now have the audited results for that period, and we are finalizing the necessary calculations for the associated amount of dividend.

Speaker 3: Our board will be evaluating our dividend policy and be sure to have an update for you on our next goal.

Speaker 3: With that, I'll pass it on to the operator. Norma?

Speaker 3: I'll pass it on to the operator. Norma?

Speaker 2: As a reminder to ask a question, you'll need to press Star 11 on your telephone. To withdraw your question, please press Star 11 again. Please wait for your name to be announced. Please stand by. I will recompile the Q&A roster.

Speaker 2: One moment for our first question. And our first question comes from the line of Michael Lavery with Piper Sandler. Your line is open.

Speaker 2: first question. And our first question comes from the line of Michael Lavery with Piper Sammer. Your line is open. Thank you. Good morning.

Speaker 5: Who am I, Matt? How are you? Good, yeah. Just was wondering if you could give us maybe a little bit of the state of the industry. You're in a kind of a unique position to really see all across it and just maybe how it's evolving and then what the key implications are for that for your business. ...

Speaker 5: I'm sorry. Michael, can you repeat the question while it's coming clear on our end? Sorry, yeah, just given how many operators you are in contact with, you know, you seem like you have a unique perspective on the industry overall. Just was wondering if you could give a sense of how you see the market evolving.

Speaker 5: And what that means for you, obviously, you're pointing to some stronger pricing, and that's one of the aspects of it. But just curious, at a high level, what you're seeing across the industry, and then some of what that means for your business.

Speaker 3: Okay, let me start and I'll pass it on to Scott.

Speaker 3: In terms of the market, we all know that the market did take a significant turn in the second half of 22, not just from the point of view of what we saw as valuations for the company, but also at the industry level. And this was reflected in...

Speaker 3: in the wholesale pricing that we saw across the markets. But if we split that further and dig into those pricing trends, we should notice that a lot of the pricing decline.

Speaker 3: happened in cycles. So the extremely competitive markets, the likes of California, Oregon, Nevada, they saw a large, close-in decline earlier in this phase. And we have now reached a point where some of those markets have arguably hit a bottom and I started coming back up.

Speaker 3: how they should position themselves. So the earlier era of 2021 and early 2022, where they were all just chasing revenue for the sake of revenues, are now thinking, looking inward and trying to figure out what are the cost reduction strategies, what are the most effects.

Speaker 3: out, yes, some of the good operators are taking the measures to cut their costs, slow down their capital deployment and we view that as a positive. We like the fact that they are taking a step back. It may mean that some of the capital raises that these companies were planning get pushed out by a quarter, but at the end of all of it, it's actually good for the industry, it's good for us.

Speaker 3: And so we do have an optimistic view in terms of where this is going to end up by the end of the year or next year. This process of correction in many ways was much needed. And we think that we are right at the, or if not at the bottom, we are pretty closed.

Speaker 4: to very close to the bottom in terms of protection and we should start things improving over the next couple of quarters. Scott, do you want to ask? Yeah, I think who may actually cover most of it, I think there's still a firm amount of consolidation that has yet to occur in the industry. So, you know, while...

Speaker 4: industry comments, you know, in terms of what we see on the capital market side, is, you know, Michael, it still remains very much in the doldrums, you know, just in terms of, you know, the general sentiment out there towards the sector. And, you know, the capital availability, I would characterize still as extremely constrained.

Speaker 4: both as it relates to public equity, private equity, as well as the availability of credit capital. I mean, that sort of works in our favor, obviously, is it affords us the ability to really be selected and pick and choose and dictate terms in a way that we might not be able to.

Speaker 4: in the more competitive environment. And the beat goes on there. We haven't really seen any meaningful change in trend in terms of capital formation of flow into the sector.

Speaker 5: Okay, thanks. That's great, Tyler. Thanks so much.

Speaker 2: Thank you. And at this time, I'd like to hand the conference back over to you, Ms. Mahajan, for closing remarks.

Speaker 3: Thank you, Norma. Thank you everyone for joining us on this call. We look forward to speaking with you again on our next call and give you an update on our business and our strategy.

Speaker 3: Thank you everyone for joining us on this call. We look forward to speaking with you again on our next call and give you an update on our business and our strategy going forward. Thank you very much.

Speaker 2: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.