Q3 2023 Silver Spike Investment Corp Earnings Call
Speaker 1: Good morning.
Good morning.
Speaker 2: This is Umesh Mahatchin, CFO of Silver Spike Investment Corp. What's 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, where we released yesterday and can be accessed from our website at ssic.silrspicat.com.
This is a mash mahajan CFO ops like investment Corp. With me here today is our garden of <unk> investment Corp.
They come to silver spikes earnings conference call and live webcast for the third quarter of 2023.
<unk> financial results for the quarter ended September 32023 were released yesterday and can be accessed from our website at S. S. I C dot silver spiked cap dot com.
Speaker 2: Any play of the card will also be available on SuperSpy's website.
A replay of the call will also be available on some of our sites.
Speaker 2: 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.
Right.
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 and other 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.
Speaker 2: Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to defer maturely from those expressed or implied by these forward-looking states.
Speaker 2: We encourage you to refer to our most recent SEC filings for information on some of these risk factors.
SEC filings for information on some of these risk factors.
Speaker 2: To respect a Zoom's no obligation or responsibility to update any forward-looking statements, please note that the information reported on this calls speaks only as of today, November 10, 2023.
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 November 10, 2023, therefore, you're advised that time sensitive information and no longer be accurate at the time of any replay or transcript reading.
Speaker 2: Therefore, you advise that time-sensitive information may no longer be accurate at the time of any replay or transcript.
Speaker 2: All right, so good morning again, and thank you all for joining. We released our results yesterday and there's a management presentation deck attached to the 8k that was filed. Those who are joining us today on this earnings webcast should also be able to see it live.
Alright, so good morning, again, and thank you all for joining the release of our results yesterday.
And there's a management presentation deck attached to the 8-K that was filed.
Who are joining us today on this earnings webcast should also be able to see it live.
Speaker 2: We may refer to the slides by numbers just for your repentance.
You may refer to the slides by numbers just for your reference as we go through those stages.
Speaker 2: I'll cover the presentation slides and then turn it over to Scott Gordon for his thoughts towards the end of the presentation.
Uncover the.
Presentation slides and then turn it over to Scott Gordon for his thoughts towards the towards the end of the presentation.
Speaker 2: So if you please turn to page three of the presentation, shows the financial highlights for the third quarter 2023, gross investment income of 2.9 million, expenses of 1.3 million, gives us net investment income of 1.6 million.
So if you please turn to page three of the presentation.
It shows the financial highlights for the third quarter 2023.
Gross investment income of $2 9 million.
Sensors off $1 3 million.
This gives us net investment income of $1 6 million.
Speaker 2: net investment income per share of 26 cents.
Net investment income per share of 26 cents.
Speaker 2: net assets at the end of period of 87.4 million It's down from last quarter due to the payment of dividend that we that we recently paid
This quarter net assets at the end of period of 87 four.
4 million.
From last quarter due to the payment of dividend that'd be that'd be recent debate.
Speaker 2: Our net asset value for share is at 14 spot zero.
Our net asset value per share is at 14 spot zero six.
Speaker 2: There are no new investments this quarter will discuss our origination efforts and portfolio in more detail in subsequent slides. We're also pleased to announce that our board has approved a cash dividend of 70 cents per share. Consisting of a regular quarterly dividend of 25 cents per share. What's this 23 cents per share last quarter and a special dividend of 45 cents versus 40 cents. Stayed last.
There were no new investments this quarter will then discuss our origination efforts and portfolio in more detail in subsequent slides.
We're also pleased to announce that our board has approved a cash dividend of 70 cents per share consisting of a regular quarterly dividend <unk> 25 per share versus 23 cents per share last quarter.
And a special dividend of 45 cents what is 40.
Speaker 2: These dividends will be payable on December 29th to stockholders of record on December 20th.
Great last quarter. These dividends will be payable on December 29.
Stockholders of record on December 20.
Speaker 2: With the going through the next few pages quickly, as most of our investors are already familiar with our story on.
But they're going through the next few pages quickly as most of our investors are already familiar with our story.
On page four.
Speaker 2: Syllis Bike Investment Corp, the BDC, is managed by Syllis Bike Capital, a CC registered investment advisor, with a seasoned team that has decades of investing experience and an extensive network in the cannabis industry.
<unk> investment Corp. The BDC is managed by a sudden risk by catheter a SEC registered investment advisor.
With a seasoned team that has decades of investing experience and an extensive network.
In the cannabis industry.
Speaker 2: On page 5, it presents the experience profile of our management team.
On page five it presents the experience profile of our management team.
Speaker 2: Fates 6 presents the Competitive Advantage and Deferentiation that a BDC offers these of the other types of investment vehicles.
Page six presented the competitive advantages and differentiation that a BDC offers needs or other types of investment vehicles.
Speaker 2: 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% of our assets invested in real estate, which allows us for more flexible lending strategies that the industry really needs and will need going forward.
Primarily rights, which are our.
Main competitors in the cannabis lending space FSIC can lend against cash flows as well as real estate.
And unlike reads that are required to have at least 75% of assets invested in real estate, which allows us for more flexible lending strategies that the industry really needs and will need going forward.
Speaker 2: On page seven, 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 seven we talk about the market opportunity we believe the added.
In the early innings of a multiyear 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.
Speaker 2: on page 8, we show our detailed underwriting process that we go through for every investment that we make with our cap.
On page eight.
Vishal are detailed underwriting process that we go through for every investment that we make with our capital.
Speaker 2: On page nine, we're sure sourcing an ordination effort on 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're very busy working through the existing deals and feel very good about the opportunities that we're currently pursuing.
On page nine.
Vishal are sourcing origination effort on active pipeline remains very robust.
There was a temporary lull in dealer deal activity towards the end of the summer, but that has picked up again in October we have an active deal pipeline.
448 million and they are very busy working through the existing deals and feel very good about the opportunities that we are currently pursuing.
Speaker 2: On page 10, it 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...
On page 10 shows the diversification embedded in our portfolio are 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 students each state has its own set of regulations and unique competitive dynamics. Each company is each company and our portfolio is diversified.
Speaker 2: Each state has its own set of regulations and unique competitive dynamics. Each company is, each company in our portfolio is diversified.
Speaker 2: and at an overall portfolio level we are even more diversified across various state jurisdictions.
And at an overall portfolio level, we are even more diversified across various stages directions. The bijac Hum on the Companys strategy and the center of this page shows.
Speaker 2: The buy chart on the company strategy in the center of the space shows.
Speaker 2: that we have a healthy mix of companies across those that have brands as their primary.
We have a healthy mix of companies across doors that have brands as his primary focus.
Speaker 2: versus MSOs that are focused on setting up business infrastructure across multiple states.
Says.
Msos that are focused on setting up a business infrastructure across multiple states.
Speaker 2: So we feel good about the overall risk diversification embedded in our portfolio.
So we feel good about the overall diversification.
In our portfolio.
Speaker 2: Flight 10 shows our portfolio summary as of September 30.
Slide 10 shows our portfolio summary al.
Speaker 2: Company A is Shrine, which is the owner of Brand Steezy. Company B is Pharmacan. These two investments were made last year in the summer. Company C shows Q reliefs, 8% secured bonds. Due 2026, they were purchased at a significant discount to its par value. Our last three investments are floating rate loans and they were made with the...
As of September 30.
<unk> is a company a shrine.
Which is the owner of a brand Steezy company be as farm again. These two investments were made last year in the summer.
Many C shows key reliefs, 8% secured bonds due 2020 saves that were purchased at a significant discount to its par value.
Our last three investments there are floating rate loans and they remained.
But with prime as a base rate cut.
Speaker 2: Company D is one of our large investments in Verano's forced lien term loan, a transaction that was done last October . Company E represents our investment in Merrimet, investment made earlier this year. And company F represents Dreamfield Brands, owner of the brand Jeter, one of the most recognized cannabis brands, especially in the pre-roll category. This quarter, we facilitated an expansion of the credit facility for Jeter, though our position size remains.
D is one of our large investments in <unk> first lien term loan transaction that was done.
Last October company E represents our investment in Merrimack made earlier this year and company F represents dream theater brands owner.
Owner of the brand Jeter.
The most recognized cannabis brands, especially in the payroll category this quarter.
We facilitated an expansion of the credit facility for Jeter, although our position size remains the same.
Speaker 2: So overall, if you 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%.
So overall, if you look at the top of the page our quarter investment.
That he was bought $57 million with an average yield to maturity on the loans of 18, 2%.
Speaker 2: A few additional points we like to emphasis when we look at this portfolio and when we are comparing this with other BDCs out there. All of our positions are for sling loans or secure bonds.
A few additional points.
We'd like to emphasize when we look at this portfolio and end and when we are comparing this with other bdcs out there all of our positions are first lien loans are secured bonds.
Speaker 2: None of our loans or bonds are in a nautical status.
None of our loans or bonds in a non accrual status or 90% of our portfolio is in floating rate.
Speaker 2: or 90% of our portfolio is in floating rate.
Speaker 2: 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.
<unk> Securities.
And our gross portfolio yield of over 18% compares quite favorably to the broader listed BDC universe. So.
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.
Speaker 2: So let me conclude by reminding the investors that the quarterly dividend of 25 cents and the special dividend of 45 cents will be paid to the stock holders of record on December 20, 2020.
So let me let me conclude by reminding our investors at a quarterly dividend of <unk> 25.
And a special dividend of 45.
We paid to the stockholders of record.
On December 22023.
Speaker 3: So with that, let me pass it on to Scott Gordon for a few remarks.
So with that let me pass it on to Scott Garland for a few remarks.
Speaker 4: Thanks, you're welcome. Just briefly with respect to the broader market.
Thanks, so much.
Just briefly.
With respect to the broader market.
Speaker 4: Our conditions over the course of the quarter were decidedly mixed. News on the regulatory front with respect to a potential reschedulant of cannabis earlier in the quarter led to widespread enthusiasm among industry participants.
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 widespread enthusiasm among industry participants publicly traded cannabis names rallied strongly in anticipation of <unk>.
Speaker 4: Publicly traded cannabis names rallied strongly in anticipation of finally long-awaited and meaningful regulatory reform taking shape. Generally, operators in the space were led to believe that this would result in an imminent increase in capital flow coming into the sector.
Finally long awaited a meaningful regulatory reform taking shape generally operators in the space were led to believe that this would result in an imminent increase in capital flow coming into the sector.
Speaker 4: As such, they paused many of their financing initiatives, which resulted in a low capital market activity across the board.
As such they pause many of their financing initiatives, which resulted in a lower capital market activity across the board and the mesh referred to.
Speaker 4: We believe this is a temporary thing and are already beginning to see a meaningful pickup in our deal sourcing effort.
We believe this is a temporary thing.
Are already beginning to see meaningful pick up in our deal sourcing efforts mean.
Speaker 4: Meanwhile macro trends in the sector remain intact. Growth in most markets is broadly in line with forecasts and many of the price and margin compression pressures we have seen over the last several years seem to be finally.
Meanwhile, macro trends in the sector remain intact growth in most markets is broadly in line with forecasts and many of the price and margin compression pressures, we have seen over the last several years seemed to be finally abating.
Speaker 4: New state markets continue to come online, most notably the electoral decision this week in Ohio to implement adult youth.
A new state markets continue to come online most notably the electoral decision this week in Ohio to implement adult use.
Speaker 4: Consolidation among operators continues to be a theme of smaller and less efficient companies or either shuddering or merging to create better economies of scale and operating efficiency.
Consolidation among operators continues to be a theme is smaller and less efficient companies are either shuttering or emerging to create better economies of scale and operating efficiencies. This is particularly prevalent in California, a market, which has struggled of late with its own idiosyncratic issues and challenges.
Speaker 4: This is particularly prevalent in California, a market which has struggled of late with its own idiosyncratic issues.
Speaker 4: Overall though, we remain excited that the opportunity set for us at SSIC is attractive, as capital in the industry remains a scarce commodity, affording the espiability to continue executing on structuring solid loans with very favorable lender terms and credit metrics.
Overall, though we remain excited that the opportunity set for us.
I see as attractive as capital in the industry remains a scarce commodity.
Affording us the ability to continue executing on structuring solid loans with very favorable vendor terms and credit metrics with that I'll turn it back to a mesh.
Speaker 2: Thank you Scott. So that's what we had in terms of our formal presentation. We would be happy to answer any questions you have.
Thank you Scott.
So that's what that's all we had in terms of our formal presentation, we'll be happy to answer any questions you may have.
Speaker 5: Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself in the queue, please press star 11 again.
Okay.
Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker 5: Our first question comes from Michael Lavery with Piper Sandler. Your line is open.
Our first question comes from Michael Lavery with Piper Sandler Your line is open.
Speaker 6: Thank you, good morning. Hey, good morning, Matthew. How are you doing?
Thank you good morning.
Good morning, Matt how are you doing.
Speaker 7: Yeah, good. I want to follow up on your commentary about the price compression and the market conditions, at least stabilizing.
Yes good.
I want to follow up on your commentary about the price compression in the market.
Conditions.
At least stabilizing.
Speaker 7: Just going to get to spend 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, improve especially, or even just stabilize, especially around pricing?
And just I guess, maybe a couple of things.
Broadly are you seeing that.
Okay.
Would it be right to think that.
In some of those market conditions approve improve especially or even just stabilize especially around pricing.
Speaker 7: 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 somewhat what you're saying?
Would seem to make operators is lower.
Willing within claims too.
Look for capital and financing it would that be the right way to think about it is that.
It's about what you are saying.
Speaker 3: Yes, thank you. That's a great question, Michael. Yes. As we have experienced over the last year, there was...
Yes. Thank you.
That's a great question Michael Yes.
As as we have experienced over the last year there was.
Speaker 2: 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 operating for the operators.
In many of the competitive market, especially the.
The vessel stance 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 operating for the operators do you actually think about and execute their growth strategies. They were more of a hunker.
Speaker 2: to actually think about and execute their growth strategies. They were more, 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 cooperative dynamics.
Down there looking inside their herd they were trying to fix some of their operations and get to a cost structure, where they can compete better and prevail.
The competitive dynamics.
Speaker 2: Now that we have seen that a number of licenses have not been renewed for cultivation, many of those taste.
Now that we have seen that a number of our licenses have not been renewed for cultivation and many of those states.
Speaker 2: Now that we have seen that the cultivation and the wholesale markets have improved as a result in many of those markets 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 too forward. It could be just organic growth revisiting some of their add-ons to either the cultivation facilities or adding a couple more dispensaries.
Now that we have seen that the cultivation and the wholesale markets have improved as a result in many of those markets and you started seeing some of the uptick in the wholesale prices. The operators are feeling more comfortable that revisiting some of their growth plans in those growth plans to be twofold. It could be just organic.
Growth revisiting some of their.
Some of them.
Add ons to that either the cultivation facilities are adding a couple of more dispensaries or it could also be M&A and there is definitely a lot of focus on consolidation and M&A.
Speaker 2: or it could also be M&A. And there is definitely a lot of focus on consolidation in M&A, but they are now feeling more comfortable pursuing those strategies. And whichever strategy they pursue, capital is gonna be a good and an important component of it. And we want to participate with those good operators in executing those strategies.
But they are now feeling more comfortable pursuing those strategies and whichever strategy to pursue.
Capital is going to be a good and an important component of it and the.
We want to participate.
Good operators in executing those strategies.
Speaker 2: And of course, as lenders, we have to, as part of our underwriting process, focus on the companies that are well positioned, given to all these dynamics, but also want to be very supportive of whatever strategy they are to be adopted. Either case, they will lead capital and we would like to participate in those strategies for the right operators.
And of course as lenders we have too.
Part of our underwriting process focus on the companies that are well positioned given all these dynamics, but also want to be very supportive all part of our strategy. The occupancy at all either case, they will need capital and the what.
Like to participate in those strategies for the right operators.
Okay, great. Thanks, so much.
Speaker 5: Thank you. There are no further questions. I'd like to turn the call back over to you, Master Mahazim for close your remarks.
Thank you there are no further questions I'd like to turn the call back over to you Ms <unk> for closing remarks.
Speaker 2: Thank you. If there are any additional questions that the investors may have, please reach out to us or 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.
If there are any additional questions that investors may have please reach out to us 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.
Speaker 5: Thank you for your participation. This doesn't go to program and you may now disconnect. Everyone, have a great day.
Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
Okay.
Okay.
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Okay.
Okay.